Market Dynamics Can Be Tricky To Negotiate

This newsletter has been reporting in recent months on the growing landlord's market in commercial office space, and new evidence reinforces that trend. A survey of the 72 largest markets showed that office rents rose at the fastest pace in six years in the third quarter, and vacancy rates continued to decline.

The Wall Street Journal reported that the survey by research firm Reis Inc. showed an average increase of 2.3% nationwide in effective rents (the amount office tenants actually pay when concessions are factored in) from June to September. That was the highest quarterly increase since 2000.

The highest increase was in New York City at 4.8%, followed by Austin, Texas, at 4.0%, Boston at 3.7%, Orange County, Calif., at 3.7%, and San Francisco at 3.6%.

Meanwhile, the average vacancy rate for office buildings nationwide was down to 13.5% in the third quarter, the lowest since 2001. This was aided by only 8.5 million square feet of space coming on the market in the third quarter, well below the absorption rate of 10.6 million square feet.

There could be some relief for tenants in the fourth quarter, when Reis estimates 20 million square feet of new office space could come on the market. Slower growth in the U.S. economy could also mean fewer new jobs being created, which would take some pressure off the office market.

With these market dynamics, it becomes even more important to have an experienced tenant representative on your side.

Marketing Your Space for Sublease, Part 2

Last month we presented six key factors to consider when marketing your sublease space. Here are four more that can help a company identify potential hurdles, fully understand what they have to sell, and develop a strategy to efficiently complete a sublease transaction.

7. Concessions. Tenant improvements, rental/parking fee abatements, architectural/moving/furniture, cabling allowances, etc. Depending on the market, concessions are employed to entice a prospective subtenant to proceed with a space that might not be ideally configured for their needs. Fully furnished space with a phone system in place is often enticing to subtenants who need to make a decision quickly.

8. Deliverability. If your space is not vacant, it is helpful to have a date certain on when the space will be available for lease.

9. Risk/Underwriting. Subtenants will want to evaluate your financial stability/risk of default as a tenant on your prime lease. For example, if you default with your landlord, your subtenant could lose its rights to your space. This is particularly relevant if you are subleasing your space because of a business setback and/or if you are subleasing your space at a rent well below the rent you paying to your landlord.

10. Quoted rental rate. Rate is a critical component as subtenants are looking for deals. In general, with an aggressive "below market" asking rental rate, marketing time can be reduced. Since subtenants are bargain hunters, your ability to undercut those who may be marketing more desirable spaces (direct or sublease) in more attractive buildings is important to your success. A low price is often an exchange that a subtenant is willing to accept in order to lease space that may not fit its needs exactly. We almost always advise our clients to specify an asking price/rental rate in their listings as opposed to saying "negotiable." We believe that this approach can save you and potential subtenants time and will not scare away prospects who may assume incorrectly the price is too high for them.

While the above points outline important issues to consider, they are still only very general in nature. Other issues can often come into play before you finalize your subleasing strategy. Please contact us to discuss your specific subleasing needs.

Safety First with Laptop Battery Recall

If you are reading this on a laptop computer, please check if your battery is being recalled. Since August, more than 7 million laptop batteries have been recalled due to the possibility of overheating and fire. It began with Dell, which has recalled more than 4 million laptop batteries, and now includes Apple, Lenovo, Toshiba, Fujitsu and HP.

While the number of incidents of laptop fires or overheating is extremely rare, it is important to get the suspect batteries replaced as soon as possible. All were made by Sony, and information is available on the model numbers from manufacturer's websites or the U.S. Consumer Product Safety Commission, www.cpsc.gov. Only certain models have the suspected batteries, so check carefully.

Sony has said the affected batteries can have microscopic metal particles in them that can cause a short circuit. Typically, a battery pack will shut down when there is a short circuit, but in some this safeguard has failed.

Once you know you have a recalled battery in your laptop, experts recommend that your turn it off, remove the battery, and use the AC adapter cord until you get your replacement battery.

In addition, it is always good to observe safe handling of laptop batteries, never letting it come in contact with metal objects such as coins, keys or jewelry. Never let it be crushed or dropped either. And when operating a laptop, keep it off soft surfaces such as pillows or blankets that can clog the cooling fan intake.

The Miller Richmond Company Announces Four Lease Transactions for the Atlanta Market

The Miller Richmond Company, an Atlanta-based commercial real estate brokerage firm, is pleased to announce that it has successfully negotiated 50,000 square feet of office leases and a 40,000 square foot office / warehouse lease on behalf of four different clients in the Atlanta market. The clients included:

• Sanuwave, a medical device company focused on the utilization of Extracorporeal Shock Wave Technology, subleased 15,025 square feet of office space from Hagemeyer North America, Inc. at 11680 Great Oaks Way.

• Suzuki Learning Center Of Buckhead, Inc, a private pre-school, leased an entire office building at 443 East Paces Ferry for a total of 19,208 square feet.

• US Franchise Systems, Inc, a hotel franchisor, renewed its office lease for 15,852 square feet at 13 Corporate Square.

• Value Music Concepts, a retailer of CDs, DVDs and related products, renewed its office / warehouse lease for 40,366 square feet at 825 Franklin Court.

David Rubenstein and Bogue Miller, Principals with The Miller Richmond Company represented these clients in their respective lease transactions.

According to Mr. Miller, "each of these clients has an expanding business with specific functional and geographic space requirements. Despite the improving leasing market that we are seeing throughout Atlanta, we were able to secure ideal solutions that afforded flexibility and functionality at relatively low rental rates. It's still a good time to be a tenant in metro-Atlanta."

Mr. Rubenstein added, "We are doing business across the country and still find that Atlanta offers good value for the rent dollar relative to other major U.S. markets. The concessions we saw twenty-four months ago may have diminished, but continued vacancies and relatively cheap and available land are still keeping effective rents in check."