Maximize Tenant Improvement Dollars

An important part of every lease is the budget for tenant improvements. And how that money is spent can make a lot of difference. If you get a "turnkey" buildout, you are all set, provided it is based on fully developed and approved drawings of what your space is going to look like. More likely you will receive a cash allowance for construction. Then it becomes vital to make sure that you maximize the tenant improvement allowance provided. Here are some items to watch:

* Landlord Supervision Fee: Some landlords/property managers will try to charge up to 5% of the total construction cost just to review your plans and coordinate construction activity. Yet the actual time spent is often between 10 and 20 hours. Better to negotiate the supervision fee down or away or even provide the landlord with a fixed hourly rate rather than a percentage.

* Base Core and Shell Definition: Where do the landlord's base building costs end and the tenant improvements start? We recommend using the Building Owner and Managers Association's standard definition for what condition a new building needs to be in prior to the tenant taking over the cost of finishing out improvements. For older buildings, you want the landlord to cover the cost of any demolition or compliance with code prior to you spending any part of your allowance for tenant improvements.

* Preinstalled Items Charges: Sometimes landlords will try to deduct for items that are preinstalled. For instance, sprinkler systems should be installed in newer buildings prior to the space being built out and not charged to your budget. And in second generation space, make sure that you never pay for doors, hardware or window coverings that already exist. A detailed survey of existing improvements within the space prior to construction commencement is often helpful.

* Competitive Bids: Many landlords have close relationships with (and even have ownership interests in) general contractors. When possible, make sure that at least three contractors bid on your work and that you are allowed to include at least one of the contractors on the bid list. Remember, competition typically prevents landlord conflicts and lowers the price. Even if the landlord's "preferred" contractor wins the bid, you will know that the pricing is consistent with the open market.

In closing, bear in mind that all these protections need to be introduced up-front in your first proposal. The longer you wait, the easier it will be for the landlord to just say "no."

Markets Turning in Favor of Office Landlords

Evidence continues to mount that tenants are losing their negotiating advantage in office leasing while landlords are gaining the upper hand.

In a survey of 72 office markets, the vacancy rate was 13.8 percent in the second quarter, down from 14.2 percent in the first quarter, according to research firm Reis Inc. A drop in the vacancy rate allows landlords to ask for and get higher effective rents from tenants, and Reis noted a 2.1 percent rise in rents.

The latest report from consulting firm Property & Portfolio Research also documents this trend. PPR found that in every commercial property type except industrial, the inventory of vacant space fell in the second quarter. The tightening was most pronounced in the office and apartment building markets, with both sectors posting quarterly vacancy declines of 0.2 percent. In tracking the national office vacancy rate between midyear 2005 and 2006, PPR found that it fell by 90 basis points to hit 16.2 percent. PPR expects vacancy to drop by another 50 basis points through midyear 2007.

The office market does vary from city to city, but overall company profits have been up and job growth has been solid for the most part. These factors will continue the market momentum that favors landlords through the end of the year. Our office tracks the market on a daily basis. Let us help you find the right location with the most favorable lease terms in the face of these changing conditions.

Smart Buildings For Tech-Savvy Tenants

Used to be some marble in the lobby made a building attractive. Increasingly, it's the wiring in the walls and intelligent infrastructure that commercial tenants look for. That's because advanced technology can be used to improve the profitability and productivity of their business. And "smart" buildings also run more efficiently, which should translate into lower operating expenses.

The technology infrastructure of a smart building starts with a robust supply of electric power and multiple sources of broadband fiber-optic service. Then the communications systems and building management systems, such as lighting, energy, security, fire safety, and heating and air conditioning, are integrated into one system, often controlled over the Internet. If something goes wrong with the air conditioning, for example, that triggers an electronic report via e-mail and a message to the building manager's cell phone.

All the data and connections travel over pathways, and in older buildings, those conduits can be too small to support modern needs, and retrofitting is expensive. With new buildings, developers can bring information technology specialists into the design process and design extensive and flexible conduit pathways to accommodate numerous office configurations. This allows for the easy installation of whatever type of cabling is needed, advanced computer technology for the monitoring and control of the heating and cooling system, and proper shielding to eliminate electronic "noise."

As businesses become more dependent on computers and the Internet and energy costs increase, intelligent buildings can be the most cost effective options.