Considerations in a COVID-World
as a Tenant

The COVID-19 pandemic forced commercial tenants to confront questions about their real estate portfolios that most had been deferring for years. How much space do we actually need? Where does work happen most effectively? What flexibility do we have — and what flexibility do we wish we had — in our lease commitments?

The answers that emerged from that forced reckoning remain highly relevant today. Any organization reconsidering its footprint — whether responding to hybrid work, a headcount change, a merger, or a financial restructuring — is working through the same fundamental questions. The frameworks are identical.

The Fundamental Shift

Before COVID, most companies sized their real estate against a headcount model: so many people, so many square feet per person, so many offices. Space utilization data — how many people are actually in the building on any given day — was rarely collected and almost never acted on.

The pandemic established, definitively, that real estate needs to be sized against utilization, not headcount. A company with 1,000 employees and 60% average utilization does not need space for 1,000 people. It needs space for 600 — and flexible overflow. That single insight, applied consistently across a portfolio, generates enormous financial opportunity.

Space Utilization and Density

The first step in any portfolio rationalization is understanding actual utilization — not theoretical capacity. Badge data, desk booking systems, and sensor data all provide meaningful signals. The question to answer is not "how many people could fit in this space" but "how many people use this space on a typical Tuesday."

Density standards also warrant review. Pre-COVID industry standards of 150-200 square feet per person were already compressing before the pandemic. Post-pandemic hybrid models often support densities of 100-130 square feet per person for the days when people are actually in the office, combined with collaboration-focused design that drives utilization on those days.

The implication: many organizations are carrying 30-40% more space than they need. That excess has a P&L cost, a balance sheet cost, and an opportunity cost — capital that could be deployed elsewhere.

Workforce Analytics

Real estate decisions interact directly with talent strategy. Location decisions affect commute patterns, talent availability, and employee satisfaction. Before making any significant portfolio change, it is worth modeling the workforce implications — where employees live, which locations matter most to retention, and which office closures or consolidations represent acceptable risk versus unacceptable disruption.

This analysis frequently changes the conclusion. A company might identify a location as excess space financially, only to discover through workforce analysis that it anchors a critical talent cluster. The right answer in that case is not to exit — it is to right-size. Conversely, analysis sometimes reveals that a location most people assumed was essential actually draws employees from a wide geographic distribution, making a relocation or consolidation less disruptive than anticipated.

Lease Flexibility

Every lease in a portfolio should be audited for flexibility provisions — termination options, contraction rights, expansion rights, and sublease rights. These provisions have real economic value and are frequently overlooked.

Going forward, every new lease negotiation should prioritize flexibility mechanisms. In a market where landlords need tenants more than tenants need specific buildings, flexibility is achievable — if you negotiate for it explicitly rather than accepting standard lease forms. Shorter initial terms, phased occupancy options, and clearly defined termination triggers are all negotiable in most markets today.

Portfolio Rationalization

With utilization data and workforce analysis in hand, a portfolio rationalization exercise becomes straightforward: identify which locations to retain, which to right-size, and which to exit. Each exit candidate then goes through the strategy selection process — buyout, sublease, restructure, or exercise of existing contractual rights.

The financial modeling should run in parallel with the operational analysis. Every disposition decision has P&L, balance sheet, and cash flow implications that need to be understood before the decision is made. The accounting treatment under ASC 842 adds complexity — impairment timing, lease modification accounting, and sublease income recognition all affect how the financial statements will look in the quarters surrounding each action.

What to Do Now

If your organization has not conducted a systematic review of its real estate portfolio since 2020, this is the moment. The tools and data to do it properly exist. The market conditions — in most cities — still favor tenants. And the financial benefits of getting this right are material: for a mid-size company carrying 200,000 square feet of office space, a 25% rationalization at $50/sf represents $2.5 million per year in direct cost savings, plus balance sheet improvement under ASC 842.

The companies that acted on these insights during and after COVID are carrying leaner, more flexible portfolios today. The window to do the same remains open — but not indefinitely.