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Tenants driving concessions, for now
With vacancy rates at their highest in years, many building owners and facility executives have found themselves forced to offer more deals to attract and retain tenants.
“Owners are desperate to make deals,” says Jack Sanders, vice president of corporate services at Paine/Wetzel ONCOR International in Chicago. “There is a small supply of companies looking for space.”
In the current market, increased tenant improvements (TIs) are common, but other options — such as free rent for a certain time period — can sometimes be more attractive to owners as well as tenants. Dave Morris, vice president and principal at Colliers Turley Martin Tucker in St. Louis, says that TIs are not as common because construction costs are high in his area, but when they’re called for the owner is hit twice.
“The owner is paying more money for lower lease rates as a result of current conditions,” says Morris.
What’s more, TIs require that tenants have good credit and a longer-term lease, says Bob Gibbons, the vice president and regional manager of CMD Realty in Dallas. The problem, he says, is that many tenants can’t predict where their business is going. Because of this uncertainty, they cannot meet the requirements for TIs. Instead of TIs, owners are often cutting deals on a shorter lease with a lower rent.
Owners are also having to offer concessions just to compete with discounted sublease space that has recently begun to flood the market, says Steve Mulhern, vice president and regional manager for CMD Realty in Denver.
To retain tenants, landlords are also providing incentives, such as tenant-appreciation days, picnics or baseball games. “More landlords are going out of their way to keep tenants,” says Jack Althoff, president of CommServ Ltd. in Chicago. Economics explains why: It costs less to retain tenants than to attract new ones.
Most sources don’t expect the current cycle to change until the end of next year.
“We probably have a couple more years before we hit equilibrium, where neither the landlord nor tenant has a disproportionate advantage,” says Mulhern.
— by Laura Bayard, editorial intern
DAYLIGHT’S IMPACT Bayer Corp. tried a new way to help retain topnotch chemists: daylight. Offices and laboratories for this 125,000-square-foot facility designed by Flad and Assoc. are located along the perimeter, allowing daylight from the 8.5-foot windows to bounce light off of 11-foot ceilings deep into the interior. Les Smith with Bayer says chemist retention has increased 50 percent.
MORE SOLAR ON THE GRID California’s new net metering law for solar and wind systems sets high marks and opens the door to greater expansion of renewable energy. While 33 states have net metering laws, none include systems as large as 1 megawatt. The law also bans standby charges and other fees for hooking up to the grid, says Ryan Wiser with Lawrence Berkeley National Laboratory. While renewable energy continues to do well in the state, a big increase in demand could spur supply and push prices down on systems across the country.
Correction An article in the October issue, “Deregulation’s Lone Star,” incorrectly described the way electric current is transmitted across Texas’ internal grid. Texas uses alternating current, and it only uses direct current in its connection to the grid outside of the state. We apologize for any confusion this may have caused.