Good News For Tenants
June 04, 2014
If your lease is expiring in the near future, I encourage you to carefully consider whether your current situation is ideal. While there are many signs that the commercial real estate market is improving for landlords, there are still significant opportunities for tenants.
Landlords are still in the mood to offer concessions in order to keep good tenants from moving out. Even a 10% to 15% reduction in base rent is possible in some markets. Certainly, there are several markets, primarily Houston, Denver and San Francisco, where job growth is so strong that landlord occupancy fears are waning. However, in other markets the mood of optimism is not so strong that landlords are willing to see tenants walk away.
Another factor that improves tenants negotiating power is the “shadow space” that is released into the market as existing leases expire. “Shadow space” is industry jargon for space that is leased but unused. The downsizings and layoffs from the recent recession have created thousands of square feet of this shadow space in every market. Currently, the average lease for medium to large office tenants is five to ten years, so a lot of the unused space is back on the market but not all. Before landlords can regain leverage, all of this vacant space must be absorbed.
However, there are continuing signs that occupancy rates are trending upward. It seems that tenants have been overly optimistic about how much they could consolidate and reduce their footprint. While some industries, particularly tech, have successfully created high density collaborative spaces, others have found that the model is less than successful.
For many reasons, experts in the industry predict that the buyer’s market is coming to an end, but not before the end of this year.
The good news? There’s still time to act. If you would like to discuss how to best negotiate your upcoming renewal, give us a call.
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