Since economic conditions dictatenegotiating power in the real estatemarket, there’s every reason to believe that prospective tenants hold theupper hand in these recessionary times. InDallas, that’s only partially true.
“Despite what is said in the newspapersand in the brokerage community, there arestill transactions being done,” says KathyPermenter, Managing Director of AgencyLeasing for Grubb & Ellis Company’s Dallas office. “We’re still seeing growthfrom corporate managers who are re-evaluating ways to make their business workmore efficiently.”
Permenter told Smart Business how corporate management can parlay the existingmarket into more attractive leases.
How are market pressures affecting commercial properties?
Here in Dallas, landlords are not panickyby any means. The number of prospectivetenants serving construction for our DARTrail line is growing. The number of businesses serving the medical community isstill growing. So it’s not all doom andgloom in the local real estate market.
Of course, there’s a big question aboutfinancial stability — as much on the tenants’ end as the landlords’. It’s important foryou, as a tenant, to make sure the landlordis financially stable. Is the building beingmaintained? Will the landlord have enoughmoney to pay for improvements? Can he orshe take care of security and maintenancecosts, as well as improvements and brokerfees? The list goes on and on. All those factors affect you, the tenant, even though youthink you might be insulated.
On the other hand, it’s also important tolet your landlord know what kind of afinancial situation you are in. If you arebeing squeezed, you might have some flexibility with other buildings owned by yourlandlord, in terms of the length of the leaseand tenant improvement allowances.
Are landlords doing more to attract tenantsthan they would in a stable economy?
Yes. However, they are being very carefulto find not just tenants, but good tenants.
Who would have known that some of thesewell-established businesses going intobankruptcy were financially unstable?
Landlords also are looking for a differenttype of security, depending on the amountof tenant improvement dollars allocated.There are more requests for letters of creditand personal guarantees — even from suchupscale businesses as our downtown lawfirms. Leasing their space to quality tenantshas become very important to landlords.
What recent problems have crept into thecorporate leasing process?
The main problem has been that mostmanagers have been delaying importantdecisions like relocating and consolidating.For the most part, their decision has beento retain the status quo and wait out theeconomy.
Overall, the feeling in the market is thatperhaps there aren’t as many substantialcorporate relocations being planned forthe Dallas area, though there is much activity in regard to tours and getting leasesdone. In the two weeks before Christmas,our group had 21 tours — which is unheardof this time of year.
How are landlords/owners creating value intheir buildings?
Over the past few years, even emptyspaces have had tremendous value.Properties that weren’t leased were almostmore valuable, because the next purchaserwas placing fully leased value on thatempty space. Now, with lending tight andprojected to be tight well into 2009, theconservative value of lease propertiesbecomes the net operating income (NOI)that they can generate.
These days, smart landlords/owners arecreating value by making improvements upfront to attract tenants and get the spaceleased. At the end of the day, they have tohave the space leased to credit-worthy tenants, and the deals have to make sense.
Landlords also are willing to work withyou to consolidate offices, and they will bevery creative by offering free rent, a breakon multiple leases, and other concessionsto minimize double rent payments. Youmay be able to get a few months of reducedrent to compensate for moving costs.
How should prospective tenants approachtheir real estate decisions?
You probably should be taking thisopportunity to make your business modelmore efficient for your uses. This is a greattime to re-evaluate all of your leases anddetermine how your business will bestlook and work in the future.
The general feeling is that we’ll be coming out of this recession in late 2009, solandlords are not in a panic mode, but theyare very interested in making wise business decisions that can assist corporateAmerica with their strategic long-termgoals.
KATHY PERMENTER is Managing Director of Agency Leasing for Grubb & Ellis Company’s Dallas office. Reach her at (972) 450-3214or [email protected].
