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Entries Tagged as 'General'

Thank God I’m in Texas!

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Texas is certainly taking some hits while the economy in the US as a whole is suffering.  It is certainly not hurting to the same extent.  DFW is the 4th largest metro in the US, but it created 83,600 new jobs in 2007 (3rd in the nation) and 54,300 from September 2007 to September 2008 (2nd in the nation).  Unemployment stood at 5.3% while the country as a whole was around 6.1%.  These numbers may be adjusted later as often happens, but they show that it’s a good time to be in Texas.

Costar reported that the 3rd quarter of 2008 ended with 16.6% vacancy in the office market – a slight 0.1% increase over the 2nd quarter’s ending rate.  While absorption year-to-date posted a positive 2.8 million square feet, vacancy is expected to increase as the economy slows and 6.2 million square feet of new properties are delivered.  Subleases are becoming more of a factor as well with 2.6 million square feet now available.  As sublease space increases, greater pressure is put on landlords to decrease direct rental rates to compete.

What does this mean for corporate tenants?  There will be more options for tenants for sure.  And it probably makes sense to start testing where the bottom is for rental rates.  For example, I recently completed a transaction where the landlord originally quoted $11.20 per square foot.  When I told him that the high-credit, international tenant was focused on another building he continued to pursue the deal anyway and eventually made an offer at $9.05 with a construction allowance 25% higher than the original offer.  He got the deal.”

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Dallas Office Space , General , Office Space

Opportune Time for Office Space Tenants?

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The fallout from a combination of the October financial crisis and faltering economy is starting to affect the office space market nationally.  With all the layoffs and a stagnate economy employers are laying off workers. This means a reduction in occupied office space.  According to Reis Inc., a New York-based real estate research firm more than 19 million square feet of space has been emptied by office users this year, the most since the months after the Sept. 11, 2001, attacks. In New York alone about 1 million square feet of office space is empty.

As vacancy rates have increased, office rents have started to see some slight declines.  If the economy continues on this path, we should expect to see a further drop in rental rates. Unemployment and vacancy rates are obviously tied together.  If the economy worsens and unemployment increases, we will see even an even greater drop in rental rates to fill the spaces being emptied.  Additionally, as large companies who have suffered big layoffs attempt to “get rid” of their leasehold properties, sublease space availability will increase and will become a further downward force on office rental rates.

This is bad news for Landlords, but also presents many great opportunities for Tenants in the market.  Tenants will have much greater negotiating power.  If you are in the market now, plan to be in the next 12 months, or have a renewal coming up within the next 2 years, it is a great time to start looking at your options.  The best way to do that is to make sure and work with a professional tenant rep.  There is very rarely any cost to you to obtain their services. Landlords are in the business of renting space. You run your business and are likely only lease space a few times in your business career. Level the playing field with a professional who is on your side and in the office leasing business on a daily basis.

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General , Office Space

Hurricane Ike's Impact on Houston Office Space

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Hurricane Ike, a category 2 storm, made landfall on the upper Texas Gulf Coast on September 13th.  Daily life changes immediately when one has little or no access to water, electricity or gasoline.

Houstonians acquired a ‘snake bitten’ attitude after Hurricanes Katrina and Rita.  Many locals tried unsuccessfully to evacuate during Rita while the city was operating in crises mode.  Because Rita made landfall east of Houston, and the herculean efforts of many to evacuate turned out to be ‘unproductive’, many elected to stay put during IKE.  We operated on generators (if you were lucky), water stored in the tub, propane powered cooking devises, batteries and candles.  And we all labored to insure the day’s required work was completed by sundown.

Home owners and businesses on same power grid as a fire or police stations, or other governmental offices, had their power back on in a day or two.  I know of many that went three weeks or more.

Various data sources cite:  Loss of Life – 66; Lost Productivity - $6B; Infrastructure Damage - $10B. 

How did this event affect Houston commercial real estate values?

While IKE did slow us down for a few weeks, the underlying activity, albeit slower than in 2006 and 2007, is still healthy.  Our firm closed several mid-size lease transactions immediately prior to, and after the storm.

Houston has arguably the best economic profile of any US city.  Demand remains healthy for high quality office environments as well as newer more functional industrial facilities.  Our rental rates, particularly for high class "A" assets, are at an all time high.  Most industry professionals expect a slight decline in absorption through 2009.  However, we collectively have not seen any significant reduction in rental rates or selling prices.

According to the Real Estate Center at Texas A&M, 3rd Q 2008 Houston posted 40,739 sf of positive net absorption, pushing the year-to-date tally to just over 400,000 sf. The quarterly growth was largely attributed to Class-A properties recording a 532,581-sf gain as the year-to-date net absorption (for Class A) total rose to over one million sf.

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General , Houston Office Space , Office Space

Re-evaluating Office Space Utilization

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In these uncertain economic times many businesses are re-evaluating their use of their office space.  Office space accounts for a large portion of most businesses operating expenses and figuring out and implementing how to reduce the cost leads to bottom line gains. On average each employee requires an average of 200 to 250 square feet of space. If you are in a market where the cost of space is $30.00 per square foot per year, your annual cost per employee will be around $7,000 each, not including all the other expenses related to on-site employees such as phones, furniture and office equipment.

Many companies, both large and small, find that they are operating at a 50% to 75% office space utilization rate. In other words, on average up to half of the space they are paying for is not in use.  It is not always the same space that is not in use, but the net result from employees working outside of the office, whether on sales calls or working from other locations, results in very high excess office space capacity.

As the workforce continues to shift to a more mobile knowledge and technology based worker, more options are available to better satisfy employees while reducing the cost of housing them on site.  One of the big hurdles in making this change is trust. When employees are working outside the traditional office, management becomes uncomfortable with their supervision, not sure if employees are truly doing what they should be doing. Getting over this is a big deal.  Putting procedures in place to increase management comfort and confidence levels will allow operational changes within the organization that will have positive outcomes for all.

What are the options to improve utilization?

For a larger company, providing office space to employees on an as-needed basis instead of the traditional private use basis is an option. The first step is to identify those employees who are currently working outside the office and how much time they spend in that capacity. This option works best with sales organizations, ones in which employees travel frequently or those who could take advantage of employees telecommuting (a misnomer now since it is more like a virtually VPN connected scenario rather than a telephonic one).  It is important to evaluate office use requirements based upon peak usage times rather than average usage to determine what the realistic savings could be. A key to planning for peak demand is having a well organized set of procedures for when capacity does fill and a reservation system that does not make the employee feel like a nuisance, but that they are doing a service to the company.  The transition from the conventional office where everyone has a permanent place to that of an “Office Hotel” is becoming more popular.  It is not be an easy task implement, but can lead to both cost savings and increased employee satisfaction.

Another option available to organizations of all sizes is the use of Executive Suites.  These are businesses that are involved in the business of providing office space and office services to outside businesses.  Typically what you will find is a floor of a building dedicated to offices of varying sizes which are available to rent on a flexible term basis.  Not only do they provide office space, but they also have a full staff available to perform any duties their clients need on as usage basis.  In addition they also provide access to all of the usual office equipment, telecommunication systems, High speed Internet access and furniture one would expect in a fully outfitted office. This can significantly reduce the overhead cost associated with the traditional office.  If you are interested in comparing costs, try out our Executive Suite vs. Conventional Office Calculator for an impartial comparison.

Either of these options presents you with the ability to improve the bottom line by reducing the cost of office space.

Other useful links:

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Executive Suites , General , Office Space

Manhattan Office Space Vacancy to Skyrocket

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The outlook for office space vacancy rate in the Manhattan office space market is not pretty for Landlords. Vacancy rates are predicted to increase from around 5% a year ago to between 11% and 17%, depending on where you get your numbers. Third quarter results show that Manhattan office vacancy the highest in over 2 years at around 7.5%. I can't imagine that this will come as a surprise to anyone in the industry.  The October Financial Crisis resulted in the loss of thousands of jobs in Manhattan. New York state is predicting that 160,000 state residents could loose their jobs because of the economic downturn.  The New York City Comptroller predicts that up to 165,000 people could loose their jobs in NYC over the next two years. At 200 square feet per person, that is around 33 million square feet that could go empty. Put that together with a bleak outlook for our economy and the result will be an increase in office space vacancy. It is expected to happen quickly. Many pundits predict that we will have vacancy rates in Manhattan between 9% and 10% by the end of the year.

It is bad news for Landlords, but also presents many great opportunities for Tenants in the market. Tenants will have much greater negotiating power. Some Manhattan Landlords are even offering up to one year of free rent on 10 year leases. Sublease space available for lease has nearly doubled from 3.5 million square feet a year ago to 6.5 million square fee now. Rental rates in Manhattan are still some of the highest in the world averaging around $73.00 / sf / year. It is expected they will to decline in the neighborhood of 15% to 20% over the next year as the full extent of the vacancy rate climb is realized and as company trim their staffs to survive a bleak economy.

If you are in the market now, plan to be in the next 12 months, or have a renewal coming up within the next 2 years, it is a great time to start looking at your options.  The best way to do that is to make sure and work with a professional tenant rep.  There is very rarely any cost to you to obtain their services. Landlords are in the business of renting space. You run your business and are likely only lease space a few times in your business career. Level the playing field with a professional who is on your side and in the office leasing business on a daily basis.

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General , Manhattan Office Space