© 2024 Real Estate Consultants of Colorado, LLC
Austin, TX
As brokers who represent buyers and tenants only, the spring 2020 shutdowns led us to initially think our time had finally come after years of navigating market conditions increasingly more favorable to sellers and landlords. A remarkable number of companies surfaced in late spring 2020, more bullish then ever to buy a facility for their business when they had historically leased, and the sale market followed residential trends to continue heating up. In turn, those who paused their acquisition plans in mid 2020 ended up throwing their hat back in the ring at a later time and pursuing properties at higher prices.
Office leasing, we thought, would be a different story. Two years later, headlines continue to underscore companies' delayed plans to return to the office yet our office lease negotiations often all but end when we try to negotiate rental rate discounts to reflect this dynamic. So, what's going on?
Landlords are often required to main minimum average rental rates in their buildings to satisfy their investors and lenders, so they might actually not be allowed to approve deals with rental rate reductions to reflect current occupancy trends. Moreover, landlords may not be in as big of a pinch as you would expect, since most tenants continue to pay rent even if their employees are not working in the office. Throughout the pandemic, where we have been consistently unsuccessful in negotiating office rental rates down (one significant exception being the negotiation of subleases), we have been equally successful in negotiating increased tenant improvement allowances and free rent periods. And when one applies a dollar value to free rent and construction costs paid for by the landlord, it is often realistic to expect an equivalent financial outcome as if one were to have achieved a major rent price reduction.
As brokers who represent buyers and tenants only, the spring 2020 shutdowns led us to initially think our time had finally come after years of navigating market conditions increasingly more favorable to sellers and landlords. A remarkable number of companies surfaced in late spring 2020, more bullish then ever to buy a facility for their business when they had historically leased, and the sale market followed residential trends to continue heating up. In turn, those who paused their acquisition plans in mid 2020 ended up throwing their hat back in the ring at a later time and pursuing properties at higher prices.
Office leasing, we thought, would be a different story. Two years later, headlines continue to underscore companies' delayed plans to return to the office yet our office lease negotiations often all but end when we try to negotiate rental rate discounts to reflect this dynamic. So, what's going on?
Landlords are often required to main minimum average rental rates in their buildings to satisfy their investors and lenders, so they might actually not be allowed to approve deals with rental rate reductions to reflect current occupancy trends. Moreover, landlords may not be in as big of a pinch as you would expect, since most tenants continue to pay rent even if their employees are not working in the office. Throughout the pandemic, where we have been consistently unsuccessful in negotiating office rental rates down (one significant exception being the negotiation of subleases), we have been equally successful in negotiating increased tenant improvement allowances and free rent periods. And when one applies a dollar value to free rent and construction costs paid for by the landlord, it is often realistic to expect an equivalent financial outcome as if one were to have achieved a major rent price reduction.
© 2019 Real Estate Consultants of Colorado, LLC