Commercial Landlords Have the Edge Today and Wind At Their Back
June 05, 2017
As the business climate continues to improve, the commercial real estate market has significantly tightened in favor of landlords. The shadow space and glut of sublet space has been absorbed and lease rates are inching up. If your lease will be up for renewal in 2017, here are some points to consider as you make decisions related to your commercial real estate.
In a landlord’s market such as the one we currently face, tenants will find
- Higher renewal rates
- Fewer concessions and
- Building owners more willing to let tenants walk away rather than negotiate
During the recent recession, companies shed workers and contracted their footprint. Many businesses sublet space they no longer need. When space is no longer needed but can’t be sublet, it becomes shadow space. As leases expire, companies release both sublet and shadow space back onto the market. Years into this recovery, that space is finally being absorbed and commercial lease rates are rising.
This recovery in office space rents has lagged from the typical pace seen after a recession. In recent years, there has been an overall contraction in the amount of space per worker. Technology has contributed heavily to that trend, as have the needs and expectations of the increasing millennial workforce. In addition, over half of all businesses now offer telecommuting options that place downward pressure on office space needs.
Several factors indicate that the outlook for commercial office space is an upward move in occupancy rates and price per square foot. Real estate decisionmakers are cautiously increasing their commercial space as they gain confidence that the business climate will continue to improve. Business are increasing their footprint. At the same time, the amount of space per worker is slowly inching up.
As you make your commercial real estate plans over the coming months, keep in mind that occupancy rates, the amount of shadow and subleases space and commercial leasing rates vary widely across markets. This trend is most pronounced in markets that depend heavily on a particular industry that can be hit by a downturn. For example, Houston currently has a glut of available space related to the oil industry. At the same time, the Bay Area’s tech growth is pushing occupancy rates and cost per square foot higher.
In today’s challenging market, professional tenant representation is more important than ever!
< Return to News