Commercial Tenant Lease Concessions Change With The Times

Sep 16

Written by: THE CABOT GROUP
9/16/2014 9:10 AM  RssIcon

The competition for credit worthy commercial office tenants has never been more fierce.  This is particularly true is secondary and tertiary markets. Prospective tenants are becoming ever more aggressive with respect to demands for rent concessions from landlords. These concessions generally include the usual requests for increased free rent periods, increased improvement allowances and discounted/free employee parking. However, we’ve seen a new wrinkle added to concession list—roof top employee decks. Employees are more conscious than ever of the need to improve the quality of their work environment. Landlords who can provide on-site health clubs, healthy choice options in their cafeterias and increased ambient light to interior work spaces are finding it easier to attract and/or retain tenants. 
 
Now comes the latest addition to the list of employee quality of work requests-roof top access. Roof top employee decks have, for some time, been a popular landlord developed amenity in large markets. This has been particularly true in markets where severe winter weather is not an issue. But, we’re now seeing the trickle down effect of tenant demands for roof top decks in smaller markets were winter weather is usually severe and actual usage by employees limited to a few months each summer. None-the-less, roof top employee decks are being developed in our mid-sized market at the request of quality, large space prospective tenants. Once again, we find the most successful landlords ever eager to stay ahead of the competition by studying market trends all across the country and exhibiting a willingness to respond to those trends as they arise.
 
Another interesting market trend is actually not really new but a trend that is gathering increased momentum in all markets and is a real plus for center cities large and small.   Most mid-sized markets that we’re involved with have, for some time, been glutted with Class B/Non-traditional commercial office space.   The percentage of vacant Class B/Non-traditional commercial office space often exceeds 20% with little positive absorption from year to year. Our experience suggests that vacant buildings do not generally increase in value the longer they remain vacant. 
 
However, thanks to the dramatically increased demand for center city, urban living, much of the vacant Class B/Non-traditional space is being repurposed into loft style apartments. This trend has produced two remarkable results for city centers:
* Long vacant Class B/ Non-traditional building stock, a blight on downtown landscapes, is being taken off the market at accelerating rates.
* Center cities are experiencing an explosion in residency driven by the demand for apartments in formerly iconic structures including warehouses and general office buildings. Long gone retailers are once again viewing center cities as viable economic locations. 
 
What started as one off development projects by risk taking visionaries a decade ago has grown to an avalanche of redevelopment activity. All of which  proves once again that it pays to study the macro market, make reasoned  business decisions based on the counsel of market experts and work with trusted advisors.   

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THE CABOT GROUP 130 Linden Oaks Rochester, NY 14625 866-381-1500