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Slow Recovery for US Office Space Market Beginning

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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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Re-Imaging Office Space for the 21st Century Employee

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For decades office space has pretty much remained the same. The top executives resided in enclosed offices with windows and doors while most of the staff members worked in cubicles. While the layout improved over the years with ergonomic advances, the basic layout and work style of offices remained more or less static.

Now that we are in the 21st Century, office space is being re-imaged completely by many businesses and the re-invention of the office is proving to be more productive. Office work styles are changing radically, driving some of these changes.
 
The last few decades have also experienced workers who remained with a business for a few years, then moving into other positions of higher levels in competing companies. Many businesses accepted this style of employment because few employees remained long enough to earn a pension and the associated costs. However, the cost of locating and training quality employees was very high and the experience factor that was lost began to cost many companies in the long run. This, too, drives the re-imaging of office space.

Silicon Valley was the first area in which non-traditional office spaces began to emerge. Google is a prime example of one of the first businesses to re-image their office space. Instead of a bullpen full of cubicles, workers have desks and equipment in

communities where those who work on similar projects can easily brainstorm at any time. If someone needs a few minutes to think in a quiet area, there are plenty of unique locations to do so, such as a large bathtub full of pillows facing a wall of aquariums. While some meetings are held around a table with chairs, employees have options to meet in comfortable lounges with comfortable furnishings or outdoors.  Areas for recreation are provided; including video game stations, a top of the line cafeteria and the entire area has data access so anyone can use their laptops anywhere they wish. If someone needs to go to the far side of the Googleplex, as it is known, they can jump on one of the readily available bicycles which can be used in the wide hallways or outdoors.

It may seem as if the re-invention of an office into this new style would cut productivity. The reverse has proven true, as the huge profits generated by the employees of Google has proven. Employee satisfaction is extremely high, making team members want to produce. Benefits and freedom to work in whatever style is preferred by the team members generates strong employee loyalty, reducing turnover so that training and experience is maximized.
 
This re-invention of office space looks and feels very radical at first, but when you think of how people really work and where their ideas are generated, it makes perfect sense. Seldom do cutting edge ideas emerge from a single person. Usually they occur when people are interfaces, chatting over a cup of coffee, or brainstorming together. Why should they be forced relegated to cubicles where they face barriers to communication and contact with others?

Google’s solution to what an office space should be and how it should functions has let other corporations, both large and small, to adopt changes which improve human contact and happiness. It has long been known that happy employees are loyal, trustworthy, and extremely productive. While unhappy employees may produce, many ideas that could earn millions in profit never come to light. The confinement inherent to traditional office space layouts is radically changing and your business may find that re-inventing all or part of your office space may increase productivity and employee satisfaction.

Having looked at one office re-invention, our next post on this topic will delve deeper into the drivers of office space re-invention. Then we will look at ways to apply these concepts to your own workspace.

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What does a Tenant Rep do?

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The following is from our OfficeFinder LinkedIn group discussion on the most importnat activities Tenant Reps provide their clients on addition to just finding space:

boston tenant repI believe the top Time & Money saving services that we provide to clients all revolve around the Transfer of Specialized Knowledge to the client, so that they may make the most informed decision. Up to date market information, understanding the players involved, defining and executing the process required for a successful outcome and most importantly, proactive advocacy, each individually represents significant savings for a client.
Mike in Boston

 

Tenant RepAvoiding mistakes is another important aspect of why tenant representation is so important for office tenants. We do this every day, just like the landlords and listing agents. Tenants only search and negotiate for office space every few years. Landlords and listing agents love to see tenants coming unrepresented. It makes their business much more profitable than when a tenant is represented by experienced and knowledgeable tenant reps...like the ones we have at OfficeFinder!
Jim - OfficeFinder Founder

 

St louis Tenant Rep We provide lease digests and early reminders of important dates i.e. rights and renewal options. We also place these dates on an earlier call up internally so that we remind the tenant that they need to be addressing their real estate needs, even if their intent is to renew. We also assist with renewals. In today’s market the lease signed five years ago is most likely far above today’s market rates.

A 10% discount off of today's asking rate may sound good however, the market may be giving a 25% discount. Only through the use of their own broker can a tenant gain an accurate opinion of today’s market.

Any business who leases office, retail or industrial space expiring within the next 6 to 18 months should be talking with a broker to represent their interests. This not only pertains to renewals subject to negotiation but also pre-stated rent renewals. This is also a good time to negotiate terms and conditions not included in the original lease.

We have a good system in place and when started at the right time in the renewal process, we have been successful in leveraging our position, procuring rent reductions and changes in other terms beneficial to the tenant. We've also been able to facilitate early renewals where the tenant benefits from the negotiated terms and conditions sooner than later.

Lynn in St Louis

Orange county Office Tenant repThere is no question as a tenant representative we can all save our clients real money in the transaction and "time" money by not only doing things they would have to do but also the fact we know what to look for in the first place.

We might want to consider the money we can save clients by handling non-transactional issues after the lease is signed. Two examples: 1) client is a 501C-3 teaching museum- eligible for property tax relief. Worked with county and LL-client received over $100K in refunds over 12 years. 2)Client located in Enterprise Zone. Another client/accounting firm specializes in that area of tax. Put them together...anticipate over $500K in saving over next 6 years. There's a lot more we can do than just focus on the transaction. Just my $.02 :)
Jerry in Orange County, Ca

Office Leasing Tips , Office Space Negotiations , Tenant Representation

Alternative Office Space for Small Business

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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 owners.

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.

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Shadow Office Space to Affect Office Space Recovery

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A recent article on Bloomberg.com discussed the impact of "Shadow Space" on the recovery of the office space market. The officeFinder Blog discussed the affect of "Shadow Space" on the market back in April 2010. We defined it as "Shadow Office Space is office space that is currently under lease by a tenant, but which is not being used due to layoff of employees." Here is what the Bloomberg article had to say:

"The U.S. office sector will be the slowest to recover as companies absorb empty space and advances in technology reduce the need for square footage, said Kenneth Rosen, a professor at the University of California, Berkeley.

Unoccupied “shadow inventory” accounts for 3 percent to 5 percent of total business leases, and that space will be filled before firms sign new rental agreements, Rosen, chairman of Berkeley’s Fisher Center for Real Estate and Urban Economics, said at a conference in San Francisco. Cloud computing and other tech advances let employees work away from offices, further reducing space needs, he said.

“Every company has shadow space,” Rosen, who also runs Berkeley-based hedge fund Rosen Real Estate Securities LLC, said in an interview yesterday. Most U.S. cities face prolonged vacancies because of the surplus, excepting Washington, New York, San Francisco, Boston and parts of the Silicon Valley, where technology and venture capital spur leasing, he said."

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