Confessions of a Recovering Landlord

So the economy has been bad for 3 years now. What has been the impact on office leasing?

There are a few trends that have become apparent.

First, tenants are trading up to nicer space. When rental rates fall companies often move into higher class office buildings for close to the same price as they have been paying in lesser buildings. I have seen this occur in previous recessions as well.

Second, while they may be moving into nicer buildings, they aren't leasing excess space betting that their company will grow.

Third, when signing new leases most companies are using their space more efficiently. This translates to less square footage. So with falling rental rates and less square footage, they can often move into nicer space and still save money.

Fourth, companies that are stable and can predict their space needs are locking in today's lower rental rates. The alternative is that you give the landlord an opportunity to benefit from a recovering market in 2-3 years. For companies who can't predict the future or the certainty of their pipeline, they are opting for flexibility in their leases instead.

Fifth, small tenant demand is returning to the market. With job layoffs, comes pain. But it also tends to spark the entrepreneurial spirit and people start striking out on their own. New businesses need office space, but usually small space. 

There's no question that the economy is still bad and unpredictable. But therein lies (lay?) opportunity for those strong enough or brave enough to grad it.