REPORT: Office Tenants Have The Advantage To Get More Demanding In 2023

Commercial property tenants have gained enough of an upper hand in lease negotiations that the structure of new leases will see some significant shifts in 2023, according to CRE software specialist Quarem, a cloud-based commercial property platform that organizes and tracks lease data.

Specifically, Quarem reports that lease terms for both renewals and newly leased space will continue to decrease and tenants will negotiate hard for more defined force majeure language and expanded concessions.

Termination options have also moved from popular nice-to-haves to nearly imperative for tenants, especially if a longer-term lease is the landlord's objective. 

"The demand for commercial lease space has definitely changed over the last several years, but the structure of these leases has equally shifted in favor of the tenant," Quarem President John Rice said in a statement.

Separately, PwC reports that office supply continues to outpace demand, creating a challenging environment, particularly for older office properties — a state of affairs likely to keep the pressure on owners and would-be owners.

Accordingly, investors are shying away from the sector. Office saw the steepest decline of any property type in terms of investment sales in the third quarter of this year, PwC reports, down 33% compared to Q3 2021. 

Return-to-office rates have been slow, putting additional downward pressure on the sector. There has also been an increase in subleases combined with record lease expirations, PwC reports.