Office Tenant Market Update

If the old adage that “a high tide floats all boats” is true, then a low tide must ground a few boats as well, and that is what we are seeing midway through 2009. Many buildings that were built at high cost into what was perceived to be a rising market have been hit hard by the economic slow down. This malaise has created “a buyer’s market” and it has been some time since tenants have seen the values they are currently seeing in the market place.

Landlords are offering significant incentives to lure Tenant’s occupancy into their buildings. These offers include free rent, higher Tenant improvement allowances, lower base rents, and moving allowances for qualified tenants. As a significant line item on any company’s balance sheet, tenants are using this opportunity to reduce operating costs while improving space efficiencies in this troublesome economy.

While it is almost a given that tenants can lower their operating costs with a new lease, there are other advantages that can be obtained now that often are not available in a tighter markets. Tenants that have reduced staffs to right size for anemic markets can now negotiate often at little or no cost rights to protect growth when markets do rebound. This includes option space which is held off of the market for some period of time, Rights of First Refusal to lease space before outside tenants can, and Rights of First Offers when occupied space becomes available in the building. Landlords today are much more willing to concede on non-monetary concessions as well as monetary concessions in their bid to win a tenant’s business in this competitive environment.

Based on the economy and the supply of space that is currently available in the marketplace, it appears unlikely that we will see a significant shift in these market variables until well into 2010. So there is time to take advantage of this opportunity, but the best spaces always go first in soft markets and Landlord’s are already offering historic low pricing which is doubtful to go dramatically lower. HPI Corporate Services is available to assist tenants in understanding the market and the values to be gained.