Economic conditions during the past
several months have created a host
of challenges for office tenants. In trying to match forward-looking strategic
plans with the realities of today, many
firms are perplexed as their revenue picture is cloudy and the expense lines garner greater focus. On the other hand, the
slowdown in demand has given tenants
an improved position in dealing with
landlords.
“For those tenants who are renewing
and for those looking at other options,
today’s market conditions certainly play
in the tenant’s favor,” says Jack Hoskins,
a first vice president and occupier representative with CB Richard Ellis in
Tampa.
“While there certainly are issues to contend with, the ability to craft a favorable
deal can play an important part in
improving the bottom line in a challenging business environment. With the right
information and guidance, a tenant can
find opportunity in the midst of today’s
uncertainty.”
Smart Business spoke with Hoskins
about current market conditions and the
process a prospective tenant should
follow.
How have market conditions changed to now
favor the tenant?
The real estate markets in the most fundamental sense are simply a matter of
supply and demand. While new construction has been tempered, we still have
some new product either recently delivered or under construction. In addition,
we have seen an increase in available sub-lease space as some firms downsize to try
and reduce operating expenses in these
uncertain times. The result is we have
more options available.
On the demand side, fewer tenants are
in the market. Those that face renewal are
typically more prone to stay in place if
possible and as expansion has slowed
fewer new tenants are entering the market. The result is that those few active tenants will be highly sought after by today’s
landlords.
Given that scenario, what can a prospective
tenant expect to see in regard to deal terms?
Deal terms in this market really start with
the needs and desires of the tenant. Today,
most tenants are driven by two primary criteria: flexibility of terms and the overall
economics of the deal. We are seeing a
desire for shorter-term commitments so
that firms can adjust as the economy starts
to improve and allows them to return to a
more traditional growth mode. At the same
time, tenants are taking this time to find
greater efficiencies in their operations.
Current additional considerations may
include a period of free rent and a more
aggressive improvement allowance provided by the landlord. This is a noted change
from a few years ago where space options
were quickly absorbed and landlords who
had space could command top dollar.
Outside of specific deal terms, what else is
important to tenants today?
I am not sure much has changed but perhaps some issues have become more
important. Every firm is concerned with
its employee base. Retention of existing
employees and attracting new associates
is critical to long-term success. As such,
most firms will try and remain somewhat
stable in their geographical position if at
all possible. Parking for those employees
has always been a key issue especially as
firms try and maximize space for efficiency purposes. A 4/5-to-1 (four/five spaces
per one thousand square feet leased) ratio
is now the preferred benchmark.
Additionally, the proximity to amenities,
such as restaurants, retail and hotels, is
increasingly sought after to maximize efficiency of time and convenience. Of
course, a beautiful water view is hard to
beat!
We are also seeing an increased importance on LEED certification, especially if
it is a new building. An example is the new
Mosaic facility, which will be built in
southern Hillsborough County.
How far ahead should a tenant begin to
address its space needs?
It’s probably never too soon to start as
space needs tend to change and develop
over time. In general terms, a tenant
should actively engage the process 12 to
18 months prior to lease expiration. This
should start with initially working to
determine what in fact the specifics of the
requirement will be. This important step
allows all parties to start from a common
base of information so that all metrics can
be fairly applied to all options. As
opposed to the frantic pace of a few years
ago, today’s market allows prospective
tenants the benefit of time to work though
the process and make informed decisions.
Time is always a precious commodity; use
it to your advantage.
JACK HOSKINS is a first vice president with CB Richard Ellis specializing in occupier representation. Reach him at (813) 273-8411 or
[email protected].
