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Before the Market Bottoms Out,
Tenants Find Advantages on Top
With no quick economic fix in insight, Landlords are motivated to do all it takes to retain their tenants. Meanwhile tenants are enjoying more leverage at the negotiating table.
Since the recession officially began in December 2007, we have lost more than 5.7 million jobs. This is causing a ripple effect of office space absorption, rising vacancy rates, and falling office rents.
As companies continue to downsize, vacancy levels keep climbing – and this cycle will likely continue through early next year. At the same time, rental rates will continue to soften before bottoming out, which we believe will occur in most markets in mid 2010.
But reported asking rents are virtually meaningless: Outdated statistics today ignore the fact that real-time negotiations increasingly favor tenants, who can generally reduce their rent, secure free rent, and dramatically improve their concession packages.
Credit-worthy tenants are in a particularly strong position today, and all tenants should scrutinize the financial security of their landlords, many of whom are struggling to pay off their loans.
Current market conditions are prompting tenants to be opportunistic – but companies also need to be realistic on this still-uncertain landscape.
- Tenants looking for immediate relief may opt to renew their leases for one or two years as rents hit their low points and level off. This flexibility, however, will come at a higher cost than long-term leases.
- Tenants, particularly those with solid business plans, also need to consider inevitable rent hikes – and they might want to lock into longer-term leases of seven or eight years or more.
- Of course, tenants should use this time to review their long-term strategy, ensuring that their strategic real estate plan aligns with their business plan.
Companies that are downsizing may find that subleasing their space is a costly option. Or they may want to reconfigure their workspace and do more with less. In any event, with the stakes so high, companies are wise to partner with real estate service advisors and project managers who put their interests first.
Bob Misdom
Vice President
Cresa Partners, Atlanta
www.cresapartners.com
bmisdom@cresapartners.com
404-446-1598
CresaPartners is an international corporate real estate advisory firm that exclusively represents tenants and specializes in the delivery of fully integrated real estate services. With more than 50 offices, CresaPartners is the largest tenant representation firm in North America.
Bob Misdom is Vice President of CresaPartners Atlanta and, as senior advisor, uses his diverse and extensive business experience to negotiate beneficial real estate transactions for his clients.
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