Market is Improving, But Office Tenants Still Hold Upper Hand in Negotiations

Now several months into 2014, we’ve seen office leasing activity pick up and most markets are reporting more leasing than space becoming available (positive net absorption) with rents continue to increase and rebound from 2008.

Both fundamentals typically favor Landlords but we will still see Tenants maintaining strong leverage as they negotiate their lease renewals, as reported by Costar.

Here’s why,

  • Marketing vacancy is more expensive than retaining a Tenant, as downtime and new tenant improvements typically cost Landlords more than rent concessions and rent reductions.
  • Tenant retention is a primary focus for Landlords, whether the lease is large or small.   Although the market is improving, there is not enough new leasing activity to offset the space availabilities due to reorganizations and layoffs (shadow space) and more efficient office space usage.
  • Technological advancements, such as cloud computing has allowed businesses to reduce their floor plates as the extensive need for onsite document/file storage is diminishing.  e.g. Law firms
  • The younger workforce work differently than their older generations, as they are mobile and prefer a work/lifestyle environment. This means less time spent working at a dedicated workspace with the option to collaborate with team members or concentrate on focused work.
  • Large office users are employing workplace design strategies to reduce costs resulting in optimized space layouts.   Designers analyze how spaces are utilized and are incorporating more non dedicated workspaces into the space plan.

All these workforce factors are reducing office space footprints and are working against Landlords.

As a financial executive or business owner with an office lease due to expire within the next 18-24 months, this presents an opportunity to take advantage of the Tenant’s market by:

  1. Locking in favorable rental rates at your current location
  2. Relocating and upgrading your work environment to a quality, amenity-rich office location, capitalizing on a substantial concession package and incentives (if applicable).

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About the Author Michael Staskiewicz

Michael Staskiewicz, CCIM is the Managing Broker/ Senior Vice President of The Garibaldi Group and Founder of Michael helps innovative, purpose-driven CEOs clarify the strategic plan for a world-class work environment, so they can attract the best talent and reduce voluntary turnover.

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