Office Exodus Never Came; Now Tenants Want Extras

Fears that businesses would downsize their physical footprints en masse after seeing their employees sucessfully work from home have not materialized, at least not in the Little Rock market.

That’s not to say the pandemic didn’t affect the office space equation. Businesses are now looking for amenities to help them retain and recruit talent, and they are demanding more flexibility from landlords in their leases, according to executives at three large commercial property management firms.

Businesses are actually asking for more square footage, a trend Arkansas Business first described in July 2020, and reconfiguring offices with modular furniture to socially distance employees.

“The pandemic has sort of accelerated the consideration for companies and decision-makers to say, ‘OK, look, employees and people that are looking for

now have a lot of different options,” said John Martin, principal and vice president of brokerage at Moses Tucker Partners. “They are now looking at things that they may not have been thinking about before. And so that means we’re now in a much more competitive environment” for talent.

Some larger companies are surveying workers for insight on long-term decisions on office space, he said.

Successful property owners are continuing to invest in the office space they offer, making modern upgrades, especially in common areas, and adding amenities like outdoor areas if they’re able to, Martin said.

“I think a lot of businesses are looking for nicer properties,” said Brooke Miller, agent and partner at Kelley Commercial Partners of Little Rock. They want buildings that include restaurants, gift shops and more — attractions that make going in to the office different from work at home, she said. Her firm manages the largest office property in Little Rock, the Simmons Tower downtown.

Landlords who are flexible in lease terms, not rates, have been a bigger selling point for firms like hers, Miller said.

Eric Varner, property manager and partner at Kelley Commercial, said COVID “highlighted the need for the tenants’ business to be profitable and have a fair lease.” It also highlighted the fact that landlords need to be profitable, so that they can maintain their properties.

Martin, with Moses Tucker, said he handled dozens of lease modifications in the first two months of the pandemic and that most landlords had been accommodating. Both he and Miller expect landlords to continue being flexible.

‘Mixed Bag’

“Demand for office space is still a mixed bag,” Greg Joslin, senior broker at Colliers Arkansas in Little Rock, said by email. “We are seeing many corporate users evaluate their office requirement with keen eye on balancing work productivity and corporate culture to flexibility.” He said the firm’s central Arkansas office market had seen only a 1 percentage point increase in vacancy in the fourth quarter of 2021 compared with the third quarter of 2021, and that vacancy rates had stayed fairly consistent through the pandemic.

Joslin said some tenants with leases expiring now are starting to downsize or not renew, but that the trend is not widespread. Miller, with Kelley Commercial, said she had seen a little of everything. “Businesses had a chance and the time to actually look at what was efficient for them and what wasn’t efficient … and figure out what they want going forward.”

Her firm saw little to no new activity in 2020, and several tenants didn’t renew leases that expired in the spring of 2020, she said. But the firm saw more activity in 2021 and is seeing many leases renewed and extended, Miller said.

Martin said Moses Tucker saw demand freeze in the first two months of the pandemic. “We haven’t totally returned to the same level of activity, I would say, in terms of showing space and doing all that, but it’s pretty close,” he said. “I mean, we’ve still got good activity going on.”