Office Tenants: Show Me the Money!
Tenant representatives that deal in the commercial space market every day, are in tune with whether market conditions are “tight” (landlord has little need to negotiate) or “soft” (tenant has significant choice of space and therefore market leverage). The tenant representative’s job in a tight market is to simply go out and determine the best option and do deals, but in today’s environment, you are expected to do so much more, just like the character Rod Tidwell demands of his agent Jerry Maguire in the popular movie, to “show me the money”, corporate office tenants are expecting to get their real estate at rock-bottom prices. This includes not only lower rental rates, but more concessions and incentives.
The declining property market of the past 18 months or so has definitely put corporate real estate on the front burner for major office space users. Savvy companies have seized the opportunity to leverage the downturn in the real estate marketplace to renegotiate existing leases; redesign and right size lease spaces ranging from branch offices to the corporate headquarters, as well as reposition the entire corporate real estate portfolio.
While the decline of effective office rental rates has recently showed signs of slowing, it remains a good market for companies looking to relocate or extend leases. The window of opportunity to find new locations with the right economics, execute early renewals as well as sign longer-term leases to lock in lower rates now before the market starts to come back has already come but not necessarily gone.
Improving U.S. Office Market Fundamentals
In the last down cycle, some companies seized the opportunity and locked in low-cost options, protecting their future. Many others sat idle. In the words of Warren Buffet, “What we learn from history is that people don’t learn from history.”
In Houston, my primary market, office fundamentals are not as soft as some major cities around the country, but it is still a good time to be a tenant with landlords competing hard for business. For the corporate office tenant who has sat on the sideline monitoring market conditions and has not yet explored their options, it may be time for us like Jerry Maguire to “show you the money” while market conditions still allow us to.