2009 IS A “TENANT’S MARKET” CYCLE—SOME TIPS ON TAKING ADVANTAGE OF THE SITUATION.
The New Year is now upon us and 2009 is a year of “economic uncertainty”. Most analysts indicate that it is a “tenant’s market” and that there are opportunities for tenants to take advantage of the softening economy and achieve low occupancy costs for a number of years. What can you do to take advantage of the tenant’s market? Here are a few recommendations.
First, get some basic information in front of you—from your current lease and study current market conditions. Here is some advice on information that you will want to get organized so that you can determine the best strategy.
Get out a copy of your existing lease and create a brief abstract of it
When did the lease commence?
When does the firm term end?
What is your current base rental rate?
What other expenses do you have to pay as a tenant? (Taxes, insurance, utilities, common area maintenance, janitorial, repairs, other?)
Do you have options to extend?
If you can extend at what rates and terms? Are there notice requirements to extend?
What does your lease say about sub-leasing?
Do you have any expansion options?
Are there any early termination rights?
Is there a “hold-over provision” and if so at what holdover rate or percentage?
2. What would you estimate the current lease rate of your property to be? Is the landlord or their agent offering other spaces in your building or neighborhood? If so what are the asking rents? Are there any incentives being offered? (Free Rent, TI Allowance, Special Incentives?) Is your current lease rate above, equal to, or below market?
Are there any changes to the property that you need that would make you a more satisfied tenant? Do you want refurbishment to the space (Paint and carpet, enhanced signage, better security or lighting, expansion space, other matters)? Any changes in the floor plan?
After you have gathered this information it will become possible to begin to develop a strategy. One alternative might emerge to do a “blend and extend.” You might want to contact your landlord and inquire how will the economic terms change if you amend and extend your current lease? For instance if you currently have a remaining term of 18 months what would the landlord offer if you extended the term out for 4 or 5 years? The landlord might want the certainty and reduced risks of the longer term and in exchange give you some refurbishment or free rent or even reduce your current rental rate. Or maybe you can begin the process of looking at substitute spaces. We recommend that you start looking 9 to 18 months prior to the expiration of your lease. You might find a landlord that will provide you with incentives to relocate—including a
newly renovated space, an aggressive price, free rent, and sometimes even help with paying the costs of the lease that you are vacating if you move into the new space prior to the end of your current lease.
As mentioned above, we believe that it is currently a tenant’s market—but that is only true if you are able to either enter into a new lease or use market conditions and market information to your company’s economic advantage. If you would like help with reviewing or abstracting your current lease, estimating the market value of your current space, or developing a strategy to renew
or relocate we could bring friendly, knowledgeable, professional insights and service.
And if you are a landlord reading this—remember that 2009 is the time to get “defensive” and “aggressive”. Don’t let good tenants leave and use the same advice noted above to provide a high quality of service and other incentives to try to retain your tenants, the most valuable asset you have in this market.
If you would like to discuss this blog post with us or if we can help you with a commercial or investment real estate transactions, please call or email us at Jim Gray (916) 617-4255 jgray@naibt.com or Nahz Anvary (916) 617-4257 nanvary@naibt.com. “Build on the power of our network” visit our website at http://www.naibtcommercial.com/
