Although commercial vacancy is trending downward and improving little by little as each new quarter goes by, and very little if any new office product is under construction (thank goodness!), tenants still call the shots in lease negotiations these days. Landlords will keep the rental rate as high as possible to keep the value of their office product as high as possible. But to offset these higher rates, abundant free rent (as high as one year on a five year lease inside the term!!) and other concessions are being offered to tenants to attract them. Tenant Improvement money (TI) is abundant as well as other concessions such as lower cost parking (in places that it costs to park) and lower increases or “bumps “ in the lease rate from year to year.
Landlords are also fighting against signing longer leases in the hope that things will get better and so tenants need to press their advantage while they have it by “blending and extending” existing leases or signing as long a lease as they can handle so that this biggest piece (after employee compensation) of the cost of doing business is controlled for the longest time period possible.
These things tend to be cyclical so don’t be surprised if things start heading in the other direction as the economy improves. For now though, tenant/buyer reps such as myself will enjoy the ride as we help our tenants/buyers to prosper!!
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