Entries Tagged as 'Office Rental'
Colliers recently published it's 4th Quarter 2010 Office Highlights report for the US and Canada.
- Office Markets Look and Feel a Lot Better - But Higher Rents Still Some Way Off.
U.S. office vacancy rate down sharply - U.S. office market has unquestionably turned the corner.
Office occupancies up for a third consecutive quarter.
Rent picture again mixed.
Office construction slows to a trickle.
Some other interesting results:
- Highest US Downtown Office Vacancy Rate - San Jose/Silicon Valley at 27.9% (down from 35% the previous quarter)
- Highest US Suburban Office vacancy Rate - Las Vegas at 38.6%
- Most Absorption for 2010 - Washington DC metro area at over 4.1 million square feet (Midtown Manhattan a close second at nearly 3.6 million square feet)
- Lowest US Downtown Vacancy Rate - Raleigh/Durham at 5.3% (with a 33.8% suburban vacancy rate)
- Averages - Downtown Vacancy Rate 16% - Suburban Vacancy Rate 18.3%
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Investment Real Estate , Las Vegas Office Space , New York Office Space , Office Rental , Office Space Negotiations , Office Vacancy Rate , Silicon Valley Office Space , Washington DC Office Space
Over the past nine months we have made numerous posts on the effect that shadow office space will have on the office space market recovery. In a recent article from CNBC some numbers show the effect that shadow office space will have on the market. According to Co-star shadow space is adding as much as 7 percent to the Los Angeles office vacancy rates and over 6 percent in Chicago. This is likely to be the case in most markets. The problem with shadow office space is that before the market can see a full recovery, shadow office space will need to be absorbed. Typically, shadow office space is space that a company still has under lease, but is not in use. Before these companies who have shadow space will go out into the market to lease additional office space, they will need to fill their shadow space.
Additionally, Grub and Ellis is predicting that as the market recovers shadow space will account for about 1/3 of the increased demand in 2011 and 1/4 of the office space demand in 2012, thereby dampening the office space market recovery. The good news is that we are starting to see positive absorption. As the jobs come back, the office market will improve.
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Chicago Office Space , Los Angeles Office Space , Office Rental , Office Space , Office Space Negotiations , Office Vacancy Rate
The article below is one that I wrote in February 1993. I found it interesting that it still holds true not only for the Seattle are, but most office markets, too.
Almost 20 percent of the vacant office space in Bellevue and Seattle is available for sublease. Massive corporate restructuring, downsizing and mergers mean that many Puget Sound firms need less space than anticipated. Yet they find themselves locked into expensive long-term leases. It makes a lot of sense to find a way to recoup on space that would otherwise stand empty.
Office Leasing Tips , Office Rental , Office Space , Office Space Negotiations , Sublease Office Space
Even at 20 percent, sublease space in the market is underestimated. When any space is vacant or is soon to be available due to a pending move, it is included in our vacancy rate analysis. But often sublease opportunities are poorly marketed and publicized. Space with less than one year remaining in the lease is often not marketed at all. So tenants willing and able to relocate and go through the complications of a sublease transaction will find plenty of attractive possibilities around town.
"Attractive" is not a word you would hear from building owners, who often view subleases as bad news. Rates are typically at least 15 percent lower than direct leases. An owner therefore finds himself competing with existing tenants for new tenants. It's an uphill battle, because the landlord is usually at an economical disadvantage.
Rental rates for sublease space in some of the newest buildings in downtown Seattle, for example, can run as little as $12 per square foot, complete with full service. This is a whopping one-third savings over the average downtown rate of $18 for similar office facilities.
Garth Olsen of Cushman & Wakefield, leasing agent for the remaining 100,000 square feet of AT&T sublease space in the AT&T Gateway Tower downtown, says that his firm is asking between $14 and $15 per square foot. This includes a generous tenant improvement allowance with a lease that runs through the year 2000.
On the other hand, the landlord has a starting price of $18 per square foot. The building is only 54 percent full after two and a half years. Having to compete against your major tenants to lease space adds insult to injury.
Getting a Good Deal
Despite the obvious economic benefits, there are some challenges in negotiating a wise sublease. If costs were equal, it would be more desirable to deal directly with a landlord than to sublease, since there are fewer risks and complications involved. Direct lease space negotiations are two-way between landlord and tenant. In a sublease arrangement, however, transactions become three-way, with all the inherent pitfalls of any triangulated relationship. "In most leases, the original tenant is still ultimately liable for rental payments, even after the space has been subleased," said Craig Michalak, a prominent Eastside broker. "If the subtenant pays less than the face rate of the original lease, the original tenant must make up the difference." He points out that the subtenant, in turn, needs to be concerned with the financial stability of the original tenant. The subtenant may find themselves stuck making overage rental payments, or could end up with default problems that cannot easily be cures. In a worst-case scenario, they could be forced to move.
For companies like the Hogan Company, a Bellevue communications firm, subleasing 7,800 square feet of office space for the past three years has been a good decision. "I looked at everything available that was the right size for us," said Walter Hogan, president. "My final decision was based on cost. We were able to move into our space as is, and saved more than 20 percent over doing a direct deal. I'm very pleased with how everything worked out, and highly recommend a similar arrangement to others."
Hogan was lucky. It's unlikely that the layout and site of an office will exactly match a new tenant's needs, especially in offices greater than 5,000 square feet. When the space can't be used as is, an appropriate allowance for tenant improvements needs to be included in the sublease. Otherwise, the 'financial benefits of a reduced rental can quickly vanish. A typical downtown tenant improvement allowance is around $25 per square foot. Using a 10 percent annual interest rate over a five-year lease amortizes to $6.37 per square foot per year in rent. In other words, more than $6 of each rental payment goes to help the landlord payoff tenant improvements. When the remaining term is less than three years, these expenditures can cause the effective rental cost to increase significantly if the tenant has to foot the bill. What seemed at first glance to be a good deal becomes a very expensive proposition.
Remaining terms of less than two years are the norm for sublease space. But spaces offered by major users often have remaining terms and expansion options that reach well into the next century. In these cases, it's worthwhile to calculate very carefully the pros and cons of various tenant improvement options. Long-term subleases can make sense even when the subtenant ends up paying for improvements. When improvements are amortized over many years, the results of a sublease can become much more beneficial than anything that could have been obtained directly through the landlord.
Two of the larger companies in town with large amounts of sublease space available are AT&T, with 100,000 square feet, and Seattle First National Bank's Security Pacific Bank space, with 200,000 square feet. AT&T's space became available due to a reorganization of the company's work force. SeaFirst's space is the result of their well-publicized merger with Security Pacific Bank. Both leases have a long time to run...;, about seven and a half years for AT&T, and about 25 years for the bank. In SeaFirst's case, there is little probability of finding firms willing to commit for a quarter of a century. So they can be expected to be flexible on the length of term for subleases.
SeaFirst is in the process of finalizing their leasing strategy and selecting a leasing representative. They have already done well, subleasing 150,000 square feet of their original 350,000 square feet to West One Bank and other smaller subtenants. SeaFirst views their property more as owned than as leased. They have therefore decided not to disrupt the market by undercutting prices for competitive space. In other words, they are taking a long-term ownership approach, rather than opting for a quick fix that could result in both hard feelings and financial drawbacks in the long run.
Outstanding opportunities await any business owner willing to consider subleasing space. But risks are certainly present too. Anyone interested in investigating subleased property would be wise to consult a real estate professional as well as an attorney; to make sure that the deal is really as good as it looks.
According to an recent article at Reuters.com, the US is approaching the turning point in the office space downturn and should start to see a slow recovery over the next couple of years.
"The U.S. office vacancy rate is expected to peak in the middle of next year at 16.8 percent, as it did in 2003, and is expected to fall very slowly to 16.4 percent by the end of 2011 and to 15.3 percent by the end of 2012, according to CBRE Econometric Advisors.
Real estate research firm REIS Inc also sees a slow office recovery. REIS sees the U.S. office vacancy rate peaking at 17.7 percent at the end of this year and then slipping to 17.4 percent by the end of next year.
"There's nothing in the job market that's pointing to a quick lease-up of space," said Victor Calanog, REIS director of real estate."
The good news is that the bottom appears to be near. The bad news is that it will be a long slow recovery that will most likely parrallel the economic recovery of the US.
There are a few major markets that are already seeing good improvement. Both Manhattan and Washingtom DC has seen a lot of leasing activity. Ironically, they are the two most expensive markets in the US.
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Manhattan Office Space , New York Office Space , Office Rental , Office Space , Office Vacancy Rate , Washington DC Office Space
Operating a small business can be both exciting and
lucrative. More and more people are leaving the traditional workplace to open
their own ventures and becoming quite successful. Many startups begin with only
the owner working in the business which makes leasing or renting office space
the largest overhead expense. There are practical ways to cut this big overhead
item by thinking creatively. There’s no reason that every business needs a
walk-up storefront in order to succeed.
Share an Office: If you have friends or colleagues who are
also starting businesses that don’t require storefronts, consider leasing a
spacious one or two room office and split the expenses equally. This reduces the costs for electricity, internet,
janitorial, and other equipment leases. Instead of each office partner
procuring a copier, fax, and other equipment that both parties use, only one
item is needed, significantly cutting the cost. Compatible services work well
in shared office spaces. One example that has proven to work great in shared
spaces might be a software development company and a computer technology
company. There are many other compatible
combinations; just be sure there won’t be a conflict of interest or direct
competition. Instead, seek an office mate that will be synergistic to your
business so you can help each other grow and thrive.
Executive Suite: These are shared office with services run by a management company. They provide not only office space but furniture, phones, Internet, office equipment and administrative service. They are typically a full floor of a prestigious office building and you will have lots of other small businesses around for networking.
Co-Working: Much like office sharing, co-working is a
concept originated in 1999 where entrepreneurs and small business owners who
share the same values ban together to form a community of business people.
Co-working usually begins when networking partners find they enjoy the social
aspects of working in the same space and may often help either other’s business
in various ways. The partners then lease an office space, sharing all expenses.
Each of the co-working partners conducts their own business in their own
workspace in the shared office and the co-workers may share support staff such
as receptionists or clerical staff in order to keep overhead costs low while
providing everyone effective support for their small businesses. This concept
is growing into a great solution for hundreds of like-minded small business
Virtual Office: Today, you really don’t need
a specific location for an office with walls. With mobile wireless internet
services, hot spots available in most metro locations and even urban areas,
multiple personal data devices, and smart phones that do almost everything a
computer does, it is possible to work anywhere at anytime. You can operate your
business from your living room sofa, poolside, in your vehicle (please stop
your vehicle in a safe location before texting or computing for safety), in a
coffee shop, at McDonald’s, and right at your client’s desk. By using online
services such as GoogleDocs, your information can be safely stored online for
presenting to your client easily. With outsourcing of many tasks, you can take
your laptop and smart phone and conduct business in any location you desire. If you do have a need for an office, Executive Suites also offer a virtual office service that allows you to use an office or conference room on an as needed basis.
Lease a Desk in a Business that Buys
Your Services: Often, a small business begins because on business
requires the services that will be offered. For example, an insurance company
may regularly require the services of a licenses investigator. If your small
business is complimentary to a local business, check into leasing a desk in an
unused area of the office. In tough
economic times, many offices are willing to lease a desk space to a small
business that is not in conflict with their own business.
Home Office: The vast
majority of small business startups begin in a home office. This allows the
entrepreneur to begin conducting business without making a huge commitment to
overhead expenses. Also, many owners of small startups begin their venture
while working a traditional career, making certain their business will succeed
before giving up the regular paycheck.
Some of these small businesses never move out of the home office, even
after hiring an employee or two. Of
course, if the operation grows large enough or requires a great deal of
inventory, the time will come to move from the home, but many virtual service
businesses never leave the home office. Home Office Blog Posts
Warehouse Rental: Storage warehouses of various sizes are zoned
commercial and in most areas can be used as a business location. These
warehouse locations are great for the small startup business that manufactures
a product, purchases and adds quality to an existing product before sale, and
service companies that provide auto repair, computer repair, and similar
services. If your business is the type that does not really benefit from a
“flashy” storefront, this can be a great solution for keeping your startup
costs very low. Traditionally, people seeking auto repair, auto body work, auto
paint, motorcycle accessories or repairs, and similar services tend to believe
that if the storefront is too fancy, they will be overcharged. These types of
business can actually benefit from the casual office space offered by leasing a
storage warehouse. Just make sure the type of business you are starting meets
the zoning regulations and the landlord’s lease restrictions.
More on Flexible Workspaces from the OfficeFinder Blog.
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Executive Suites , Flexible Workspace , Office Rental , Office Space , Virtual Office Space