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JLL Sees Recovery Signs for Office Market

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CHICAGO-Signs of a national office market recovery, including the peaking of sublease space and rents bottoming out, began appearing this year, according to Jones Lang LaSalle in its First Quarter 2010 North American Office Outlook. However, company research experts believe that though confidence is returning, job growth will be slow to recover until at least the beginning of 2011.

The national office vacancy rate rose by 20 basis points to 18.3% in Q1 2010, but this increase was relatively stable compared to the vast losses of space, more than 200 basis points, from quarter to quarter in 2009, said JLL officials. Also, the amount of available sublease space nationwide has dropped for the past two quarters, says John Sikaitis, JLL’s director of national office research.

However, the amount of shadow space, offices leased by tenants but not used, has grown at large firms, Sikaitis tells GlobeSt.com. “Many large corporate tenants have excess space, in excess of 9%, that will absorb any new growth this year,” he says. “For example, when company X goes out and hires 10 people in the next three-to-six months, they won’t need more room. Because of this, we believe the first wave of growth is not going to result in much occupancy gains.”

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Office Rental , Office Space , Office Vacancy Rate

Things to Consider When Choosing Where to Locate an Office In Your Home

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The Telework Research Network estimates 20 to 30 million people in the United States work from home at least one day a week. That’s a lot of bedrooms and basements being transformed into home offices. If you’re one of the many self-employed or telecommuting workers searching for space in your home in which to set up an office, you need to analyze the space available to make sure it’s suitable for an office. While you may be able to commandeer a closet or take over one end of the dining room table and call it your home office, choosing a space that meets all your office needs can save you aggravation and even money.

If your home is your primary place of business, you may qualify for a home office deduction on your income tax return. This allows you to deduct a percentage of your utilities, homeowner’s insurance and other expenses as a business expense for tax purposes. The percentage you’re allowed to deduct is equal to the percentage of space in the home occupied by your office. The office must be a separate room or structure and must be used solely for the business. You should check with a tax professional to make sure you comply with all the rules for home office deductions. If you comply, the home office deduction can be an added benefit of having an office in your home.

Client Access

The location of your office may depend on whether or not you’ll be seeing clients in your home. “If you have clients that need to come to your office once in a while, you will want to make sure that you have a professional looking workspace and consider the rooms that they need to go through in order to get to your office,” says Diana Ennen, President, Virtual World Publishing and author of So You Want to Be a Work at Home Mom. “If you have small kids, making a client go through the play room might not be the best idea.” A room with a separate entrance would be ideal for seeing clients at home.

Ennen cautions against putting your office in a spare bedroom with a bed. “ On the off chance you've have someone come to your home for business that would be an uncomfortable situation,” she says. And having a bed in the room might interfere with productivity. “I think it would be calling you for naptime,” Ennen says.

(Blogger's Note: Here is where a Virtual office may be very useful. Virtual office programs will generally include a fixed numbers of hours you can use an office or conference room each month. It is a great alternative for the home based business person Find a Virtual office.)

Privacy

Even if clients never come to your home office, you need a quiet, private space to work. Michael Bechara, CPA, Managing Director of the Granite Consulting Group in New York, advises locating a home office some distance from the home phone and children’s playrooms. “It’s best to be on a separate floor of the home if possible,” Bechara says. “Even if you are in a separate room, if there are other people in the house on the same floor the voice will carry and there is the risk that someone will barge in to your office accidentally. A basement or attic office would be ideal.”
Bechara cautions against locating your office in an open area such as a balcony overlooking the main floor of the home. While these space may seem ideal since they’re separate from the main living quarters but allow you to keep an eye on everything that’s going on, they will likely end up being too noisy and full of distractions.
Bechara also vetoes locating a home office near children’s activities, due to the noise and distraction this can create. Yet some working parents like to have the office located where they can easily keep an eye on their children. For instance, Ennen has a television in her office so that on days when her kids are off school they can join her in her office.

Utilities

Where you locate your office may be dependent upon availability of a phone line, internet, fax line or even cable television, if you need these for your work. If these utilities aren’t already in place, such as in a basement, attic or garage conversion, you’ll need to add the cost of getting them to your office into the cost of setting up your work space.

Bechara recommends a separate phone line for your business. You don’t want to compete with your teenager for calls from clients, and you want to avoid having your children answer calls from customers.

You also need to make sure your proposed office space has enough outlets to accommodate all your office equipment. The State.gov website recommends bringing all your equipment into the room and plugging it in to make sure the power system can handle the load. If breakers trip you may need to contact an electrician to install new wiring and/or a separate breaker for your office.

Light

“You want a room with lots of light,” Ennen says. The Center for Building Performance and Diagnostics at Carnegie Mellon University surveyed 25 studies which showed that better lighting improved productivity in offices.
But it doesn’t take research scientists to know that a well-lit office is better than the alternative. As Bechara says, “Dark places aren’t very inspiring.”
Office light can be provides by windows, or fluorescent or incandescent lighting, but check to make sure lighting doesn’t cast shadows on the workspace, or create glare. Ennen warns against placing a computer next to a window, since glare from strong sunlight can make it impossible to work. Blinds and drapes can’t always block the glare.

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Flexible Workspace , Home Office , Office Space , Virtual Office Space

Smart Small Business: Turning Fixed Costs into Variable Costs

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What do entrepreneurs, small businesses, start-ups and freelancers all have in common? In addition to overwhelming stress levels, they share a need to remain financially nimble, which enables them to adapt to today's ever-changing marketplace. When evaluating operational costs against projected revenues, companies can avoid financial traps by scrutinizing fixed costs. Personnel, facilities and goods and services are the three key fixed expense areas that should be addressed.

"Cutting back on overhead expenses is a great way for companies to save money and remain financially prudent," explains Steve Strauss, USA Today small business columnist. "Small businesses often get locked into large, fixed expenses unnecessarily. It's essential to stay fluid as work demands ebb and flow. Business owners often see these expenses as unavoidable or costs that can only be reduced in the long term. There are immediate ways to adjust these expenses to keep businesses afloat and profitable in times of crisis, and as a long term strategy."

Personnel: Hiring full-time employees comes with the added expense of healthcare, 401(k) plans, and other benefits on top of their salaries. When project loads are low, these employees may not be working at capacity, but their related expenses don't adjust accordingly. This equals wasted money. A smarter way to maximize your personnel investment is to hire freelancers.

Independent workers make up 30% of the nation's workforce. And, that number is expected to grow. According to a survey conducted by Regus (LSE:RGU.l), global leader in flexible workplace solutions, in September and August of 2009, 59.6% of U.S. companies expect their use of freelance workers to rise in the next two years. Using freelancers turns your fixed human capital costs into a variable expense that corrects against project requirements as they ebb and flow. Additionally, freelancers are often experts at their craft who offer a higher caliber of work. The Freelancers Union is an invaluable organization that helps businesses tap into the top talent in any given field.

Facilities: Office leasing is often a company's biggest fixed expense. Getting locked into a long-term, traditional lease can be corporate suicide for a small business. In fact, nearly half of all office space sits empty or is unutilized. There's also the added burden of furnishing and maintaining that space. So, what if your office space could scale with your needs much like the freelance workforce suggested above?

Several turnkey options exist that allow companies to pay only for what they use while presenting a professional image and providing a functioning workspace for staff. Regus offers a full range of cost-effective business-ready workspace products including fully furnished, fully equipped offices, meeting rooms with on-site business and administrative support services.

When a physical office is unnecessary, virtual offices allow businesses to instantly gain a market presence with a prestigious, high-profile business address. Support services can also include local telephone answering and mail handling services. 

"Paying for unused, unnecessary office space is like throwing bags of money into a bonfire," said Guillermo Rotman, chief executive officer of Regus Americas. "Small businesses fall into the long-term lease trap all too often. Staying nimble by scaling expenses with projected or actual revenues is essential for any size business, but is absolutely crucial for smaller companies operating on much tighter budgets."

Goods & Services: Businesses no longer have to enter into exclusive, long-term contracts with most goods and services vendors. Negotiating flexible agreements upfront allows professionals the ability to revisit the contracts quarterly and shop for competitive pricing elsewhere.

And, gone are the days when overstock is vital. Just-in-time production and creative storage practices help businesses cut down on inventory overhead. Businesses should pay only for what is needed, when it's needed. What's more, many sub-contractors will ship directly to a customer's clients as necessary -- cutting out the middle man and eliminating unnecessary expenditures.

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Executive Suites , Flexible Workspace , Office Leasing Tips , Office Relocation , Office Rental , Office Space

Commercial Real Estate Tenants Ask Landlords to Verify Finances

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After years of property owners conducting due diligence on the financial wherewithal of their tenants, commercial real estate agents say corporate clients are turning the tables when it comes to financial scrutiny.

With commercial real estate values down by as much as 40 percent nationwide and the number of foreclosures still growing, tenants in the market for new space now often conduct the kind of financial background checks of their new landlords they once might have been more likely to face themselves.

Dick Cassetti, a local commercial broker who does mostly tenant representation work, understands firsthand why.

Cassetti said one of his clients has given its landlord an April 6 deadline to make good on a promise related to tenant improvement money the client says it never received.

“Any large tenant of 20,000 square feet or more would be foolish if they could not get representations and guarantees that (their landlord) has money in the bank,” Cassetti said. “If the landlord is not willing to escrow the funds promised to the tenant for the build-out, then I as a tenant would look for a different landlord.”

It’s a very different reality from five years ago during a real estate boom, when such measures by tenants were relatively rare.

The motivations for tenants stem from the negative trends in real estate finance...

Read more: Pittsburgh Business Times

Note:
This office leasing issue is not exclusive to Pittsburgh. Office space tenants around the world need to check on the ability of their prospective landlords to perform.  How do you go about it? The best way is to have an office space tenant rep by your side to guide you. They deal with these issues day in and day out. They protect you and make sure you avoid costly mistakes. Their services are free to you. It is a no lose proposition.

A previous post that is pertinent to this issues is Protecting Your Businsess

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Lease Negotiations , Office Rental , Office Space , Office Space Negotiations , Tenant Representation

Shedding the Light on Shadow Office Space and the True 19% US Office Vacancy Rate

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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. It is also not listed for sublease or identified as available space. This could be space that a company is holding so that as the economy comes back they will have the space they need to get back to their “normal” workforce.  Most office leases are long term leases and shadow office space could be that space within a leased premise that is not being used, but is not suitable for sublease due to the layout and / or security concerns of a company.  It is also space that will be put on the market, but has not yet been offered.  This is space that is hidden from the vacancy rate statistics we hear about.  It can be compared to the unemployment figures that come out, but do not include the underemployed or those that have given up looking for a job. In other words, it should be added to the published vacancy rates in order to determine the true office vacancy rate.

Shadow office space will most likely the first space to be filled as the economy comes back. This will also distort the absorption rates. With no record of it being vacant, there will be no record of it being filled with new employees. When the office recovery finally does come, it will be under stated. 

How much is out there? This is a very tough question to answer without a large survey of businesses to determine their current space usage related to their leased space. Based upon our discussions with local OfficeFinder Tenant reps, the true vacancy rate, including shadow space would be 1% – 2% higher than the stated rate in any given market. That means that the Manhattan market would have in excess of 2.5 million square feet of shadow office space; not an insignificant amount of space.

From our recent post, US Office Vacancy Rate Hits 16-year High, the stated vacancy rate was 17.2%. Including a Shadow Space factor, the real US Vacancy Rate would be close to 19%.

What this means to tenants is that there are lots of great opportunities that they can take advantage of. One of the biggest problems for them is the ability to cull through the many options to find the right alternatives.  That’s where engaging a tenant representative comes in. They know the market. They know the landlords. They do this every day and can help tenants find and negotiate for the best options available. Best of all, tenants get representation at no cost to them. Listing agent fees are split to pay for their services.

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Lease Negotiations , Manhattan Office Space , New York Office Space , Office Rental , Office Space , Office Space Negotiations , Office Vacancy Rate , Sublease Office Space , Tenant Representation