Posts tagged office space
SAVANNAH TENANTS: You’ve got leverage, don’t waste it.
Mar 23rd
Second only to employee compensation, commercial real estate is typically the largest operating expense. With vacancy rates at recent highs, tenants have quite a bit of leverage. Even if you are happy with your location, here are some tips to insure you don’t miss out on a tenant driven market:
1. Get realistic with values/rates. You are in the driver’s seat, but owners won’t let you take them off a cliff. Expect aggressive rates and concessions for tenant improvements, moving costs or other goodies, but realize that if it doesn’t make financial sense to a landlord, it won’t happen. Besides simple cost savings, companies can “move up” in quality while paying the same or even lower rental rates.
2. Use a commercial agent, IT’S FREE! Is it self-serving for me to recommend that? Sure. But I am so confident that a knowledgeable commercial agent saves you money, time and unforeseen headaches, it would be a disservice to say any different. Landlords often have a flat commission amount regardless of whether or not a tenant is represented. Your rate won’t reflect any increase because you are represented. Studies have shown unrepresented tenants often pay more.
Landlords, doing multiple leases every year, have an agent representing their interest. Shouldn’t you? You may deal with real estate issues once every 3-5 years. Instantly, you gain leverage with representation. An agent’s property knowledge, recent transaction data and strategic negotiation skills are at your disposal.
3. What’s it really going to cost you? There is more to the decision making process than just the attractive new rate. Moving costs, operational downtime, new furnishings- these and other items need consideration. If you are only saving a couple percent per year, it may not be worth all the effort…..but you won’t know until you crunch the numbers.
“Second only to employee compensation, real estate is typically the largest operating expense….don’t miss out on an opportunity.”
4. Know thy landlord. Everybody’s hurting, including landlords. Most are honest entrepreneurs taking a risk to earn a fair return, but if “Landlord, LLC” files bankruptcy, your lease offers you little protection. The bank or new landlord may want to keep you, but who’s to say they won’t raise your rent? Properties with deferred maintenance and repeat system problems could make it miserable for you, your employees and clients. Poor management also often results in higher operating costs that are passed on to you. A quality building and enjoyable work environment may be worth that extra dollar or two per square foot. Another shameless plug: A good commercial agent will help you steer clear of shaky landlords and challenged buildings.
5. Tick-Tock: Don’t wait 30 days before your lease expires to start negotiating a renewal or begin looking for new space. You will have lost much of your leverage because you can’t realistically find a space, negotiate a lease & schedule a move in that timeframe. Depending on how well your lease was negotiated, there could be stiff “hold over” fees to stay past your expiration date without renewing. Start the process 6-9 months minimum prior to expiration. More complex or specialized requirements will take longer. If you like where you are, you may consider locking in a renewal rate even earlier before the market starts recovering.
6. Should I buy? Great question! Property values, construction costs and interest rates have dropped. If you have decent credit and owning is aligned with your business philosophy, now is absolutely the time to consider it. The Small Business Administration presently has programs with waived fees and requires as little as ten percent down for properties that are at least fifty-one percent owner occupied. A plus, you can include improvements and equipment costs in the loan. The SBA is also expected to announce it will temporarily allow long term refinancing for owner occupied buildings with maturing loans using the 504 program which is usually reserved for new purchases.
Rex Benton is Savannah Commercial Real Estate agent with NAI Savannah/ a division of Mopper-Stapen, Realtors and is a contributing columnist for BiS-Business In Savannah weekly business journal. www.mopper-stapen.com 912.238.0874 Office Retail Industrial Investment Real Estate
Savannah Commercial Real Estate 2009 & 2010
Feb 7th
BLOGGER’S NOTE: This was originally published in my monthly column in BiS-Business In Savannah on January 10, 2010. Look for my column every 3rd Wednesday in Savannah’s only weekly business paper.
In 2009, most involved in commercial (and residential) real estate hung on hoping “in another 6 months” things would start improving. Below is a ‘technical’ chart outlining what happened:
Vacancies: Up
Sales/Leasing: Down
Values/Rental Rates: Way down
Lending: Non-existent (relatively)
Decision Makers: Frozen/Deer in head lights
Owners/Developers and Service Providers: Ramen noodles and prayer
Tightened lending guidelines, uncertain political consequences and less consumer spending made it a tough year in commercial real estate:
Retail:
Nationally, holiday retail sales were up 1.8 percent, beating the 1 percent prediction of the International Council of Shopping Centers.
Oglethorpe Mall general manager Phillip McConnell said Christmas traffic was as strong as ever but, based on the number of bags people were carrying, they bought less. In 2010, the council of shopping centers projects a 3-3.5 percent holiday sales increase, the best since 2006 when sales grew 4.8 percent.
McConnell believes 2009 mall store sales will be off only 3-4 percent from last year. Broughton Street, Southside and the Westside saw a fair share of closures and openings.
I continue to consult national and local retailers that want to be in Savannah, but fewer are expanding or are looking at 2011.
Hotel/tourism:
One positive – hotel occupancy should finish the year down around 4.5 percent from 2008. How’s that a positive? New hotels increased the number of rooms available by 5.1 percent. Savannah was the only city in the region with an increase in demand (.5 percent).
According to Joseph Marinelli, president of Savannah Convention and Visitors Bureau: “Value is king…” Local hoteliers reduced rates 9.1 percent.
Charleston did not fare as well. They had a drop of 5.3 percent in occupancy but only a 1 percent increase in new rooms. Demand decreased 4.5 percent and rates dropped 8.9 percent.
Office and industrial:
In 2009, office development was driven by pre-leases and build-to-suit projects. Small-business professional parks were challenged. Office leasing in the central business district and Southside was flat.
Even with a few impressive leases, big-box distribution vacancies (100,000 square feet-plus) remain high due to the speculative port-related development boom. Land sales have been slow.
With vacancies in the 20 percent range, expect aggressive deal making and little dirt being turned.
Investment sales:
Nationally, investment sales volume was low. Commercial real estate investment returns (based on appreciation or depreciation and income) dropped 15-20 percent, and values dropped 40 percent from 2007 peaks. Cap Rates have climbed across all sectors.
Here are a couple of local sales: Duke Realty bought a 400,000 square foot distribution building, and a AT&T; retail store on Mall Blvd traded at an 8.84 percent cap rate.
2010: Commercial real estate —“the other shoe” will not drop.
“The other shoe,” a trillion dollars in commercial loans due over the next three years, has received a lot of press. It won’t be painless, but most of the loans will be worked out. Though values have dropped, the majority of these loans are for income producing institutional-grade properties. Locally, there are few in this category so, Savannah has minimal exposure.
The bigger effect on local values will be led more by the overall economy, distressed properties, and banks that over-played their commercial lending. My advice to well-heeled investors and business owners (that want to own or lease): economists believe the recession is over, construction costs are down - start looking for opportunities.
Money to borrow is available and vacancies will level off, but neither will drastically correct. Dr. Albert Niemi, former dean of Terry School of business at UGA, expects Georgia to recover slower than other states through 2011 but to be one of the nation’s fastest-growing states afte
rward for the next 20 years. The port, tourism and retiree draw will allow Savannah to play a very active role.
6 Local signs of the national recovery:
1. Gulfstream Aerospace Savannah increases revenues, decreases furloughs.
2. Something goes vertical at Savannah River Landing or President’s Square.
3. Housing starts pick back up; downtown condo supplies reduce.
4. SEDA announces another Megasite user.
5. GPA regains its year-over-year volume growth.
5.5 A few “big-box” warehouse leases are signed.
6. Ramen noodle sales plummet.
Rex Benton is Savannah Commercial Real Estate agent with NAI Savannah, a division of Mopper-Stapen, Realtors and contributing columnist for BiS-Business In Savannah weekly business publication. 912.358.5600 Office Retail Industrial Investment Real Estate
