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Commercial Real Estate

Tenant leasing information – time to let go?

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Time to let go?

Leasing and or tenant information.  Is this the true cre holy grail?  Why is this information held in such high regard?   What makes it so critical?  Is the information so sacred that it will never ever be revealed to the public?

Here is a quick summary of the way it is:

The brokers value proposition or “pitch.”

“We serve as your strategic advisor, lowering your real estate costs and occupancy risks while maximizing workplace flexibility and productivity. We’ll analyze your business drivers and occupancy needs, identify and evaluate appropriate options, and manage lease negotiations. In fact, we’ll be your on-call expert for all your leasing and lease administration needs.”  Pretty standard stuff and I am sure versions of this are used just about everywhere.

Brokers also gather and aggregate critical information and data.

As we sit here today that information is still directly held by brokers.  Let’s be honest, they are holding on to it for dear life. Brokers tend to be less forthcoming about some of the sensitive deal points of completed transactions. Term, renewal/escalation clauses, extra TI allowances, signage and expense provisions are critical and rarely disclosed items.

Many commercial representation agreements include confidentiality provisions, so the broker may be prohibited from disclosing details of their work. If there are no confidentiality provisions they still hold that info back, maybe only sharing bits of the info with trusted colleagues and in a vague and opaque way. Hey, without that critical data what would happen?

What about the financial sector?

Once upon a time, to find out the price of a stock you had to call your brokerage firm. They had all the critical information needed to make a sound decision about a particular stock. When a real brokerage firm started providing the near real time prices on their website, they thought they wouldn’t need as many people in their call center, and reduced staff. 

What actually happened is that clients called asking more complex questions about trading strategies, not only did the clients have more interest in the stocks themselves, they needed even more guidance. Sounds pretty simple when put in that context.

It’s time to let it go.

In a market with great transparency, the only brokers that won’t be necessary are those that can’t provide those services (those that had been previously making commission checks by hoarding data as opposed to providing valuable service). The guidance of a good broker is essential, especially with the added complexities of commercial deals. What type of environment have we created for the cre clients? What is their real experience?

Does it really need to be tied to the source of the data? Having data transparency eliminates a major headache (data collection and verification) and frees up the brokers time to focus on their strengths: analysis and decision making.

The market shifts?

Some may say this will NEVER happen. I disagree. At what point does the data not become a commodity?  When will a major brokerage or company not use that transparency as an advantage to let their brokers/agents or representatives compete in the marketplace?

My guess is soon very soon. Don’t think so? Tell me why!

CC Licensed image courtesy of Sean Dreilinger via Flickr.com.

Broker/Owner in Lafayette, IN, whose passion is Commercial Real Estate with focus on Technology, Social Media, and Networking.

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16 Comments

16 Comments

  1. Patrick

    June 22, 2010 at 10:36 pm

    Duke,

    Great article as usually. I couldn’t agree with you. At some point a company or individual will figure out a way to make all of this information readily available to the public for free. We as brokers can either be transparent now and be ready for the technology to catch up, or be left behind without a job in 5 – 10 years…. Or less….

  2. Coy Davidson

    June 22, 2010 at 11:21 pm

    I disagree, I have been around long enough to remember when the advent of the internet and the aggregation of listing information was predicted to be the demise of the tenant rep broker or even landlord reps. Developers/Owners could publish lease listing information and tenants would come to them directly. It didn’t happen. The broker that tries to compete today with the premise that he has the best data has already lost. This isn’t the 80’s.

    The comparison to purchasing a stock or security is apples and oranges. Your investment advisor has no ability to negotiate the purchase price of a security based on the volume of the purchase, the creditworthiness of the buyer, the term of ownership of the security. You buy it a set price or you don’t. The investment advisor counsels on what to buy and at what price based on its expected return price appreciation / dividend but there is no negotiation of the price per unit.

    Not only do brokers not want to disclose lease terms lease transactions publicly. I doubt the Landlords do either, not wanting a daily visit from some tenant complaining that some other tenant got a better deal.

    Not until the day the government mandates the terms of lease transactions must be recorded as public data are you going to see either brokers or the companies they represent willingly disclose that data. in fact I have more and more of my clients request that I don’t even provide any press releases on the transaction at all.

    Public companies are already required to disclose material lease commitments but the individual terms of each transaction are not required. I don’t see any change in this on the horizon. Basic and more detailed building data will become easier to obtain as technology continues its infiltration into CRE, but disclosing transactions terms publicly would be a monumental change…not during my career.

  3. Coy Davidson

    June 22, 2010 at 11:28 pm

    One other thing….I do see more transparency demanded from clients as to exactly what it we are doing for them….but then again the smart and most successful brokers are already being more transparent….that trend I agree with.

  4. Chris

    June 23, 2010 at 12:48 pm

    >> Having data transparency eliminates a major headache (data collection and verification) and frees up the brokers time to focus on their strengths: analysis and decision making.

    Well, you’ve said it – what practically every agent whines about until they realize that collecting and verifying data is not just about the data but about building relationships with landlords, owners, tenants, buyers and getting to know the market.

  5. David Bailey

    June 24, 2010 at 11:34 am

    Coy’s statement about Brokers and landlords not wanting to be Transparent is a good point. It is not in the landlord’s best interest to disclose lease terms and lease transactions publicly. However, as a Tenant Rep that demonstrates a reason why we add value. Our Job, as Tenant Reps, is to create transparency in the market to the best of our ability for our clients.

  6. Eric Odum

    July 13, 2010 at 6:14 pm

    I agree with David and Coy. Its hard for me to believe that transparency will become reality any time in the near future. Landlords and to a lesser extent tenants are fighting it tooth and nail.

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Commercial Real Estate

Pace of commercial real estate improvement is slowing

(Commercial Real Estate) The commercial real estate sector has improved substantially since the economy crashed, but is now showing signs of slowing, but data does not indicate lost ground.

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commercial real estate

commercial real estate

Commercial real estate outlook is positive

According to the National Association of Realtors’ (NAR) quarterly forecast, commercial real estate is continuing to improve, but the pace is slowing.

Dr. Lawrence Yun, NAR chief economist, said that fundamentals are still on an uptrend. “Growth in commercial real estate sectors continues at a moderate pace from a very slow pace of absorption, despite job additions to the economy. Companies appear hesitant to add new space,” he said.

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“Office demand is expected to see only slow and gradual improvement,” Dr. Yun added. “Demand for retail space is benefiting from improved household wealth, while industrial real estate is stable with increasing international trade, which requires warehouse space. Of course, the apartment market fundamentals are the strongest, as nearly all of the new household formation in the past 10 years has come from renters, and not homeowners.”

Forecasting the future

Overall, national vacancy rates in the coming year are forecast to drop 0.2 percentage point in the office sector (the sector with the worst vacancy rates) to 15.6 percent in the first quarter of 2015.

Vacancy rates are projected to fall 0.1 point in industrial to 8.9 percent, and 0.3 point for retail real estate to 9.9 percent.

With rising apartment construction, the average multifamily vacancy rate will edge up 0.1 percent to 4.1 percent, but this sector continues to experience the tightest availability and strongest rent growth of all the commercial sectors.

Rental rates for various sectors

Office rents are projected to increase 2.3 percent in 2014 and 3.2 percent next year. Net absorption of office space in the U.S., which includes the leasing of new space coming on the market as well as space in existing properties, is likely to total 44.6 million square feet this year and 50.0 million in 2015.

Annual industrial rents should rise 2.4 percent this year and 2.6 percent in 2015. Net absorption of industrial space nationally is seen at 106.1 million square feet in 2014 and 110.6 million next year.

Average retail rents are forecast to rise 2.0 percent in 2014 and 2.3 percent next year. Net absorption of retail space is likely to total 14.6 million square feet this year and 20.9 million in 2015.

Average apartment rents are projected to rise 4.3 percent this year and 3.5 percent in 2015. Multifamily net absorption is expected to total 204,900 units in 2014 and 112,500 next year.

Regional performance varies

The markets with the lowest office vacancy rates in the first quarter are New York City, with a vacancy rate of 9.5 percent; Washington, D.C., at 10.2 percent; Little Rock, Ark., 11.6 percent; Birmingham, Ala., 12.7 percent; and San Francisco and Nashville, Tenn., at 12.8 percent each.

The areas with the lowest industrial vacancy rates currently are Orange County, Calif., with a vacancy rate of 3.7 percent; Los Angeles, 3.8 percent; Miami, 5.8 percent; Seattle at 5.9 percent; and San Riverside/Bernardino, Calif., at 6.1 percent.

Markets with the lowest retail vacancy rates include San Francisco, at 3.1 percent; Fairfield County, Conn., 3.8 percent; Long Island, N.Y., 4.8 percent; San Jose, Calif., 5.2 percent; and Northern New Jersey and Orange County, Calif., at 5.3 percent each.

Areas with the lowest multifamily vacancy rates currently are New Haven, Conn., at 2.1 percent; Minneapolis and New York City, 2.3 percent; and Oakland-East Bay, Calif., and San Diego, at 2.5 percent each.

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Commercial Real Estate

Should you buy or lease office space? 5 questions to consider

When considering whether you should lease your office space or buy, an industry expert outlines the questions you should ask yourself.

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office leadership

office leadership

Should you buy or lease an office space?

Many people set up shop and lease office space, assuming this is their best, and often only option, but there are some instances where buying office space is a better option. Many blindly make this decision based on a gut feeling, and we’re not saying that is a bad thing, we’re saying that in addition to that instinct, these five questions should be asked when considering whether you should lease or buy an office space.

Stan Snipes, senior advisor, Sperry Van Ness Investec Realty of Nashville notes that the two options depend on several variables, as he outlines below:

1. Is your business well-established?

If your business is still in the startup phase, I rarely recommend buying. During the next 5 to 10 years you’ll experience employee count fluctuations, client and customer oscillations and even business direction and strategy adjustments. That is, you’ll need to be flexible, not tied to a certain space. Additionally, any leftover capital should most likely be recycled back into your budding startup. You don’t want to stretch yourself too thin.

The only exception that applies some of the time — not every time — is if your startup is in the technology space. Oftentimes tech employees can work remotely, or the technology is automated and won’t require more employees in the future. Additionally, clients of many tech startups can successfully access the company’s offering without visiting a physical office space.

2. Will you endanger your business with a property purchase?

Yes, buying can be a great investment and add a source of revenue, but even well-established business owners need to think about the stress that buying a property can put on their bottom line. Oftentimes your time and money is best spent on what you do best, running your enterprise. If buying means you won’t be able to focus essential resources to your first priority, your business, then you might want to hold off on buying.

Further, because commercial real estate can be a great investment, business owners are sometimes so eager to get in the game that they sell off portions of their business to finance the purchase. This is a bad idea. You should not let real estate decisions determine how you run your business. You’ve worked long and hard to build a successful company — don’t give it away. Another deal with always come along.

3. Do you have heavy, difficult-to-move equipment?

If you have machinery or specialized equipment that make it difficult for you to move, buying may be a great option for you. Two primary reasons: 1.) Lugging dense equipment from leased space to leased space is annoying, cumbersome and costly.

Plus, you increase the chances of damaging it every time you move. 2.) When a landlord knows it’s difficult for you to relocate, he or she is holding the cards when it’s time to renew your lease. If your lease doesn’t have a stipulation to remediate this, leasing office space will cost you more money than it should. More often than not, buying a custom space for your specialized equipment is the way to go.

4. Does your location affect employees or clients?

If attracting and maintaining top-notch employees means securing office space in your city’s prime business district, finding the perfect space to buy may be difficult. Why? Prime business districts usually have lower vacancy rates, which typically means higher prices plus fewer properties to choose from. Anytime you’re limited to a narrow location, you risk not landing the best deal. This doesn’t mean don’t buy, just understand what you’re up against from the onset.

The other issue you may face in buying location-specific space is when your customers or clients depend on your position for convenience. This is a challenge when and if your city’s submarkets are in transition. The trendy spot of the last five years, may not be in vogue five years from now. A lease allows flexibility to move where your customer and clients need you to be.

5. Are you prepared to be a landlord?

There’s a lot of maintenance that goes along with owning a building. Will you have the ability to hire a maintenance crew or will you tend the bathrooms, burnt out light bulbs and overflowing trash bins yourself?

Furthermore, many landlords have easy access to financing that could benefit you in the form of a tenant improvement package. Even though you may have capital to buy your building, can you afford to build it out the way you want to? The cost of ownership is sometimes underestimated. Make sure you’ve considered all of the possible expenses that go along with buying your office space.

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Commercial Real Estate

Commercial real estate improving modestly, little change to come

As commercial real estate improves across all sectors, the gains have been modest and NAR predicts they will continue to inch forward.

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detroit

detroit

Commercial real estate sector is improving

According to the National Association of Realtors’ (NAR) quarterly commercial real estate forecast, commercial real estate is improving modestly, with little change seen for the near future. Dr. Lawrence Yun, NAR’s Chief Economist said in a statement, “Jobs are the key driver for commercial real estate, and the accumulation of 7 million net new jobs from the low point a few years ago is steadily showing up as demand for leasing and purchases of properties,” he said. “But the difficulty of accessing loans remains a hindrance to a faster recovery.”

NAR reports that leasing activity rose 2.0 percent in the third quarter compared to the second, and sales levels are higher than a year ago.

Yun said there have been some shifts in commercial purchases. “Investors have been looking for better yields, and have found good potential in smaller commercial properties, notably in secondary and tertiary markets. Sales of commercial properties costing less than $2.5 million in the third quarter were 11 percent above a year ago, while prices for smaller properties were 4 percent above the third quarter of 2012.”

Commercial investment in properties costing more than $2.5 million rose 26 percent from a year ago, while prices for large properties were 9 percent above the third quarter of 2012.

National vacancy rates over the coming year are forecast to decline 0.2 percentage point in the office market, 0.6 point in industrial, and 0.5 point for retail real estate. The average multifamily vacancy rate will edge up 0.1 percent, but that sector continues to see the tightest availability and biggest rent increases.

Retail vacancy rates should be going down

Retail vacancy rates are forecast to decline from 10.4 percent in the fourth quarter of this year to 9.9 percent in the fourth quarter of 2014. Average retail rents should increase 1.4 percent in 2013 and 2.2 percent next year. Net absorption of retail space is projected at 11.0 million square feet in 2013 and 18.1 million next year.

Multifamily construction will meet demand

Multifamily Markets
The apartment rental market – multifamily housing – is likely to see vacancy rates edge up 0.1 percentage point from 3.9 percent in the fourth quarter to 4.0 percent in the fourth quarter of 2014, with new construction helping to meet higher demand. Average apartment rents are forecast to rise 4.0 percent this year and 4.3 percent in 2014. Multifamily net absorption is projected to total 239,400 units in 2013 and 211,300 next year.

Office rents should be going up

Vacancy rates in the office sector are expected to decline from a projected 15.6 percent in the fourth quarter to 15.4 percent in the fourth quarter of 2014. Office rents should increase 2.4 percent this year and 2.5 percent in 2014. Net absorption of office space in the U.S., which includes the leasing of new space coming on the market as well as space in existing properties, is seen at 32.2 million square feet this year and 46.1 million in 2014.

Industrial vacancies on the decline

Industrial vacancy rates are likely to fall from 9.2 percent in the fourth quarter of this year to 8.6 percent in the fourth quarter of 2014. Annual industrial rents are expected to rise 2.3 percent this year and 2.5 percent in 2014. Net absorption of industrial space nationally is anticipated at 97.0 million square feet in 2013 and 104.9 million next year.

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