Uncertain times can offer opportunity for tenants

Not since 9/11 has America's collective social conscience been hinged so delicately to Washington's next move. Despite the political influence on Wall Street, business is still moving. And for some companies facing real estate leasing decisions, things are moving in the right direction.

Credit worthy tenants are keeping commercial landlords on their toes, as the value of a little financial stability has skyrocketed. Landlords are happy to offer significant concessions to financially strong tenants who are willing to commit to long term leases, essentially sacrificing return to mitigate risk. Incumbent landlords are offering opportunities for early renegotiation to prevent current tenants from "going to the market." At the same time landlords are offering aggressive incentive packages to lure tenants from competing buildings even for relocation dates well into the future. Market-savvy tenant representatives are staying active by advising clients how to leverage the market well before expiration dates become imminent.

In Manhattan, which holds one-third of the nation's office space, the financial industry meltdown has led to a hemorrhage of available sublease space. As discounted space floods the market, landlords market-wide will have to offer rent concessions to compete, leaving the door wide-open for more stable organizations to seize prime office space at a bargain. According to FinancialWeek.com, companies are peddling sublease space at 20% to 30% discounts to direct rents in cities like Manhattan and Los Angeles.

Tenants should remember that concessions can mean more than discounted or abated rent. For example, consider asking for an early move-in in exchange for only paying operating costs for a specified number of months. Or, negotiate caps on operating expense pass-troughs for the first few years of the lease. Additional parking, above-standard build-out allowances, gym memberships and additional amenities can come into play as well. As with all leases, regardless of economic conditions, always pay close attention to flexibility, exit strategies and employee needs.

With more uncertainty on the way now that the "bailout" has passed, tenants are facing challenging times. The consolidation of banks and insurance companies will continue to erode national commercial real estate occupancies, creating hard-to-read markets and jumpy landlords. One thing, however, is for certain: now is a great time to be in the market to lease commercial real estate, and there is no better time to be aligned with an experienced tenant representative.

 
Universities and business

Our nation's colleges and universities play a much more critical role in business than providing skilled interns and graduates. Technology transfer programs, for example, can fill a region's new business pipeline with fresh companies every year. Thus, it only seems natural that locating your business near a local university can have myriad advantages.

Our nation's most active business corridors are pocked with prominent academic institutions that provide fuel for regional economies. Economic development organizations--state and local--tout their regions' academic prowess as magnets for relocating businesses. Furthermore, universities are now partnering directly with the private sector to provide facilities and resources within sprawling, ultra-modern research and business parks.

Schools such as the Georgia Tech, University of Wisconsin-Madison, Wichita State, NC State University and the University of Toledo are stark examples of college campuses that literally house business (Wichita State's aerospace research program has surpassed MIT's in reputation and progress as a direct result of industry partnerships.)

In an effort to fund research, schools will seek private sector backing. While intricate agreements are being hammered out to determine intellectual property rights, new technologies are emerging everyday in fields ranging from photo-voltaics (solar energy) to chicken embryo protein enhancements. Small biotech and software companies that start in college labs are becoming thriving, contributing constituents of our economy and often serve as the impetus for billions of dollars in venture capital distributed to startups every year.

Law firms, accounting practices, staffing agencies and other professional services firms can benefit residually by serving the industries that emerge from tech transfer centers. Companies that target high tech companies would be well served to find space near university-oriented business incubators and research centers.

Companies close to universities (or within them) can benefit from the metropolitan and socio-economic infrastructure in place to support student populations, as these areas are often focal points for mass transit and affordable housing. They are also close to restaurants, medical facilities and other employee-friendly amenities. Regions rich in academia also tend to weather recessions relatively well because research and technology development continues in spite of sagging business conditions, as grants and endowments can provide years of operating capital.

The rest of the world is catching up with the United States in terms of innovation and overall business acumen. As a result, we should do all we can to augment the growth of business and university partnerships to forge a more efficient route for innovation to reach the consumer. Our students, companies and economy will only benefit. And today, there are few things more important.

 
Greening your office: now or never?

According to a study released by Deloitte and well-known green building advocate and consultant Charles Lockwood, companies not actively embracing sustainable real estate options within three years will begin to experience a negative impact on recruiting, retention and brand awareness.

To many in the real estate market, that timeframe may sound aggressive. For the most part, there is widespread understanding that sustainable construction technologies, to date, are not very prevalent. In fact, green buildings are still newsmakers, providing further evidence that the trend is just now gaining momentum. In turn, this means that an ample supply of usable green office space is still many years away. More over, The U.S. Green Building Council's LEED program only recently announced its certification initiatives for existing buildings, making that "deadline" even more unrealistic. Nevertheless, the report's authors lend credibility to its findings.

Perhaps the report's most compelling finding is that only 13 percent of businesses polled while underway with either a LEED-EB (Existing Building) or LEED-EI (Commercial Interiors) retrofit were pursuing the designations for the purpose of reducing greenhouse gases. The majority of the companies polled were concerned primarily with workforce productivity and retention and public relations. This leads to the assumption that the current and future workforce will rate a company's concern for the environment a priority when seeking employment; which could be a good thing.

According to the report, "…90 percent of respondents reported a greater ability to attract talent, and more than 80 percent reported greater employee retention (81 percent) or improved worker productivity (87 percent). Seventy-five percent saw improved employee health, and 73 percent reported operational cost reductions."

Companies that desire retrofitting current space or relocating to new green space are having trouble aligning with affordable or qualified consultants, product suppliers, architects and builders. The market is still playing catch up. Unfortunately, the report concluded that any further delay to adopt green building and retrofit standards could hamper a company's future growth.

Losing tax benefits or missing a chance to claim other publically funded incentives will also be ramifications of slow adoption to green workplaces, according to Deloitte and Lockwood. A company's brand, especially as a younger, environmentally aware workforce seeks employment, will apparently sustain serious damage if not properly "greened."

As with all retrofit and considerable real estate decisions, consult your tenant representative about how to best move forward. Additionally, as with all industry reports, it's important to consider its findings only as they relate specifically to your business. Green or not, you know your customers and employees best.

The Miller Richmond Company
Two Ravinia Drive, Suite 1590 • Atlanta, GA   30346
phone: 770-390-1891 • fax: 770-390-1899
drubenstein@millerrichmond.com  •  http://www.millerrichmond.com