Tenants Benefit in Commercial Real Estate Downturn
David J. Rubenstein, Principal,The Miller Richmond Company
Rarely, these days can we go a week without stumbling on doom and gloom articles in the local and national business press about the devastating commercial real estate recession – Rents are down, vacancies are up and tenants continue to downsize and vacate their space. Furthermore, despite the impending economic recovery, we have a long way to go before the commercial real estate market stabilizes. While this news may not be good for a variety of players (landlords, lenders, property managers and building leasing agents), their problems can clearly become opportunities to others, namely savvy tenants.
Quantitatively, rental rates throughout the metro Atlanta are at recent historic lows; tenants currently renewing, relocating or simply renegotiating their leases have numerous opportunities to reduce their rent and/or improve the grade of their space. Additionally, these tenants can be beneficiaries of an environment where free rent, tenant improvement allowances and other moving concessions are at historic highs.
Qualitatively, tenants with increased market leverage can now negotiate for a variety of tenant-favorable lease terms. Typical concessions can include favorable options for expansion and/or reduction of space in the future, reduced credit enhancements, reserved parking, and other concessions. Additionally, given the relocation or demise of many other companies in Atlanta , there are numerous opportunities to consider vacant (or soon to be vacant) space with significant and reusable tenant improvements in place.
The key to taking advantage of this market is unbiased market knowledge. Tenants need to make certain they engage a real estate brokerage firm that understands today’s dynamic market, works exclusively as a tenant representative and never works for landlords. An unbiased and non-conflicted tenant’s consultant will be able to best leverage the market to achieve the most tenant-favorable business terms. Tenants need to welcome the current real estate recession as an opportunity; with the right guidance, smart tenants can leverage this current market to their long term advantage and significantly enhance their bottom line.
David J. Rubenstein
The Miller Richmond Company