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Employers opt-out of commercial office leases as work-from-home trend continues

Posted at 7:11 PM, Sep 21, 2020

Traditional office spaces may be a thing of the past as businesses adapt to work-from-home models.

More and more employers are backing out of their commercial office leases because their employees are no longer coming into the office and it’s leaving vacancies across the Central Coast.

“If you are being paid the same amount and you can work from wherever you want to work and be in a nice area, why would you rent an office?" said Vivian Hanover, a commercial real estate broker based in San Luis Obispo.

With nearly 20 years of real estate experience on the Central Coast, Hanover has seen the ups and downs of the market.

She says the commercial trend now is retail and office space vacancies.

“The center of San Luis Obispo is suffering more than the outskirts. Why? because they were asking for too high of a rent," she said.

AMF Media Group's San Luis Obispo office awaits employees’ return, whenever that may be.

“Between Zoom, Microsoft Teams and Dropbox, we are able to work just as we were right here in the office,” said Val Vaz, president of AMF Media.

Vaz said she misses face-to-face team meetings the most.

“There’s a collaboration that happens when you are face-to-face, but now it’s more of scheduled creativity,” Vaz said.

However, employees at other businesses may not have an office to return to.

Local commercial realtors said some employers are backing out of office space leases to work remote full-time.

It’s a process that can get messy.

“It depends on the financial tolerance of the landlord, if he/she can really carry the property without the income and if the tenant can keep paying with the government money or not,” Hanover said.

In slightly smaller markets, like the Five Cities, commercial realtors are seeing empty spots actually getting filled.

"I do leasing for about 100,000 sq. ft. and we are at about 4% vacancy right now,” said Jason Hart, broker and owner of Hart Commercial Real Estate. “We've done about three or four new leases and had about half a dozen renewals and probably only had one vacate during that time, so it’s been pretty steady."

Hart said that success has a lot to do with space variety and rent flexibility.

"There certainly are some businesses that are closing, but at the same time, there are some businesses that I have been meeting with and they've actually had to expand their square footage footprint because of social distancing,” he said.

Whether it's work from home or in your office, many are trying to find balance.

"It's really about your people. The more you can stay connected with your teams and give them that freedom and flexibility, the better," Vaz said.

Commercial real estate agents say trends vary from market to market but a lot are expecting vacancies to go up in the coming months with retail being one of the hardest-hit sectors.

Places like Los Angeles, San Francisco, and Silicon Valley are seeing much higher vacancies due to remote work.

Some businesses are also creating satellite offices at their clients' workplaces to minimize travel.