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US Office Vacancy Rate Hits 16-year High

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NEW YORK (Reuters) – The U.S. office vacancy rate  in the first quarter reached its highest level in 16 years, but the decline in rents eased and crept closer to stabilization, according to a report by real estate research firm Reis Inc.

The U.S. office vacancy rate rose to 17.2 percent, a level unseen since 1994, as the market lost about 11.6 million net square feet of occupied space during the first quarter, according to the report released on Monday. The U.S. vacancy rate inched up 0.2 percentage points from a quarter earlier and was 2 percent higher than a year ago.

"As labor markets stabilize, we expect occupancies and rents to require another 12 to 18 months before showing signs of improvement, given typical lags in commercial real estate," Reis director of research Victor Calanog said in a statement. "Even as occupancy continues to deteriorate, we're observing signs of renewed leasing activity across different metros."

The U.S. office vacancy rate hit a cyclical low of 12.5 percent in the third quarter 2007.

Rental rates fell an average of 0.8 percent in the first quarter, a less steep decline that seen last year. Asking rent fell 4.2 percent from a year earlier. Factoring months of free rent and landlord contributions to space improvements for each tenant, effective rent was down 7.4 percent from a year earlier.

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Commercial Lease Checklist

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It's crucial to understand from the get-go that, practically and legally speaking, there are oceans of differences between commercial leases and residential leases. Commercial leases are not subject to most consumer protection laws that govern residential leases - for example, there are no caps on deposits or rules protecting a tenant's privacy. Keep in mind that besides the amount of the rent, other less conspicuous items spelled out in the lease may be just as crucial to your business's success. For instance, if you expect your shoe repair business to depend largely on walk-in customers, be sure that your lease establishes your right to put up a sign that's visible from the street. And if you are counting on being the only sandwich shop inside a new commercial complex, make sure your lease prevents the landlord from leasing to a competitor.

The following checklist includes many items that are often addressed in commercial leases. Pay special attention to a few of the terms, including:

  • rent, including allowable increases and method of computation
  • security deposit and conditions for return
  • length of lease - also called the lease term
  • whether the rent you pay covers utilities, taxes and maintenance - called a gross lease; or whether you will be charged for these items separately - called a net or, if the tenant must cover three additional costs, a triple net lease
  • whether there's an option to renew the lease
  • if and how the lease may be terminated, including notice requirements
  • what space is being rented, including common areas such as hallways, rest rooms and elevators
  • specifications for signs, including where they may be placed
  • whether there will be improvements, modifications or fixtures - often called buildouts - added to the space, who will pay for them and who will own them after the lease ends
  • who will maintain the premises
  • whether the lease may be assigned or sublet to another party
  • whether disputes must be mediated or arbitrated as an alternative to court

Source: Inc Magazine

Note:
Although this article is a few years old, it still stands the test of time. While this is good information, there is no substitute to assistance from a good tenant representative. That's what we do every day. To top it off, there is no cost to you for the services of your own representative. Landlords invariably have a listing agent under contract. The tenant representative represents you, but shares in the listing agents fee. It's win-win for you.

Find a Tenant Representative to find the right space ant the right price without the hassle.  Avoid costly mistakes and get the best deal possible.

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What the U.S. could save if more people worked from home

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What would a world without offices look like? Well, Dilbert  wouldn't be funny, and there would be no such thing as rush-hour traffic. Here, thanks to Kate Lister of the Telework Research Network, a San Diego -- based research firm, is a rough guess at what else would happen to the U.S. economy if everyone who could work from home -- about 40 percent of the work force -- did so half the time. The figures are annual. Feel free to rattle them off the next time someone makes fun of you for managing in your PJs.

$200 billion
productivity gains by American companies

$190 billion
savings from reduced real estate expenses, electricity bills, absenteeism, and employee turnover

100 hours
per person not spent commuting

50 million tons
of greenhouse gas emissions cut

276 million barrels
of oil saved, or roughly 32 percent of oil imports from the Middle East

1,500 lives
not lost in car accidents

$700 billion
total estimated savings to American businesses

Source: Inc Magazine

Note:
Seems like Virtual Offices fit in here. Work from home, but have a prestigious address and a place to meet clients. Based on this information, it is the American thing to do!

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Rise of Virtual Offices Cuts into Conventional Leases

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In the troubled world of commercial real estate, where available space far exceeds what is currently needed, landlords have another reason to reach for the antacids:

Demand is growing for virtual offices.

That's not a patch of beach where you plant a chair, crack open a cold one and your laptop, and declare yourself "at the office."

A virtual office is shared work space - meeting and conference areas, reception desks, copy rooms - used on an as-needed basis, at a cost that could be considerably less than rent under a conventional multiyear office lease.

It includes shared support services, too. Depending on the provider, that could mean a receptionist along with a team of administrative assistants to help develop marketing plans, create business cards and brochures, even assist at trade shows.

And sometimes, just a stiff drink is in order. At American Executive Centers' virtual-office facility in King of Prussia, manager Gwen Bonsall Donnon dipped into the office-party stash one day to come to the aid of a client who declared after a rough day: "I need a rum and Coke."

Donnon also is keeper of the props. In her office, among other things, is a box of framed photos belonging to one of the virtual-office clients. She puts them out when he visits, to help personalize his rented space.

"We even put trash in the trash can so it looks like he's been in there," she said.

The Philadelphia region has at least five virtual-office providers offering a range of space - even in such posh addresses as One Liberty Place - and services. Costs range from at least $60 a month (for a corporate address to which mail can be sent) to $460 a month.

At American Executive, believed to be the region's largest locally based virtual-office provider (seven facilities), business is up 75 percent over the last year, said president G. Michael Howard. Lawyers account for 30 percent of new clients; entrepreneurs and start-up companies make up an additional 25 percent.

And for the first time in its 27-year history, Howard said, American Executive's virtual-office clients outnumber conventional tenants, 550 to 375.

For years, virtual-office users were typically global companies wanting a place to hold meetings during temporary visits.

But the concept's appeal has grown recently, in large part because of the recession, said Bruce Bard, owner of Intelligent Office, a virtual-office operator in Marlton with about 135 clients.

"When the times get tough, people look to drop their overhead expenses - to work from home or find cheaper alternatives without losing their professionalism," Bard said.

Nancy Fox, general manager of The Office Works in Trevose, called its virtual offices "the hybrid space between a post office box . . . and an actual physical office" secured by a long-term lease.

"It's a way to take that step forward during these hard times for people who are afraid to spend money," Fox said.

Owners of three local businesses with virtual offices shared their experiences last week.
 
Expand reach, enhance image

Brian Lureen still leases 2,500 square feet in Malvern's Great Valley Corporate Center for $5,800 a month.

But a year ago, the 47-year-old president and chief executive officer of Heritage Fincorp Inc., a wealth-management company, added through American Executive virtual-office space at the Radnor Financial Center for a monthly base price of $330. Some services are extra.

So satisfied is Lureen with the results - he has been able to expand his business reach to other markets without the expense of a conventional office lease and hiring more office staff - that he is about to enter into a second virtual arrangement. It will be with Executive Office Link Inc., of Malvern, where American Executive does not have a presence, but where Lureen has a home.

Why not just have a home office? The need for some space between his personal and professional life.

"I want to separate my house from clients and regulators," Lureen said.

At home, he also would not have the Radnor Financial Center's stunning decor: marble lobby floors, soaring skylights, lush garden boxes, soothing fountains.

"The virtual office enhances not only your business model, but also your professional image."
 
Minimalist, yet serviceable

Brian Pradon set his laptop on the cherry desk before him, contributing the sole personal touch to his virtual office in King of Prussia. The walls were bare, but for an American Executive Center-provided framed picture of the Great Wall of China bearing an inspirational message: "Teamwork. Many hands. Many minds. One goal."

Pradon shrugged off the austere surroundings. Personal effects, he said, belong "at home. Now, I'm on work mode."

At 31, the Valley Forge resident is operations manager for his family's Mack Employment Services, a staffing company with headquarters in Reading. It has five branch locations: Lancaster, Allentown, Harrisburg, Ephrata, and King of Prussia, the latter being the only virtual office. If such an option were available in the other markets, Pradon said, he would switch to it.

Converting from a traditional office lease to a virtual arrangement has saved his company about $1,800 a month, "which, to a small company, is significant," he said. That is especially true for his, he added, since Mack's business dropped 35 percent from 2008 to 2009.

In Pradon's virtual office, for $205 a month, his calls are answered and rerouted to him if he is on the road. His mail is collected. Packages are signed for. Copy machines are just across the hall - and bagels and cream cheese are served every Friday.

"You have what you need to do the job," Pradon said.

Lower rent, fewer hassles

Carole A. and Brian P. Cleere are virtual-office novices. On Feb. 1, they cut the cord on their conventional office, at the Wynnewood Shopping Center for the 23 years they have practiced law together.

They have jettisoned an $1,700 monthly rent and the hassles of maintaining an office with a staff of "one-and-a-half people" to answer the phone and handle some secretarial work.

In exchange, the Cleeres said, they have gained access for $330 a month (plus incidentals) to more extensive support services than they had, including paralegals, and more impressive digs - a 15,000-square-foot suite of meeting rooms and accessory areas on the third floor of a nine-story office building just off City Avenue.

"A stepped-up image" is what Brian Cleere, 71, called it, minus two staples of law-firm interiors - framed law degrees on the walls and shelves of brainy books.

Legal journals are so yesterday, it seems, replaced by online research opportunities. As for the professional certificates?

"They are in my home office, so I feel protected," Brian Cleere said. "My ego is still there.

Source: Philly.com

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Regus Net Falls 41% as Recession Hits Small Business

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 March 22 (Bloomberg) -- Regus Plc, the world’s largest operator of serviced offices, reported a 41 percent decline in full-year profit as the economic slowdown curbed demand from small businesses.

Net income fell to 67 million pounds ($100 million), or 7 pence a share, from 113.9 million pounds, or 11.8 pence, a year earlier, the Chertsey, England-based company said today in a statement. Revenue declined 2.1 percent to 1.06 billion pounds.

Small and medium-sized companies cut back on office space as the economic crisis hurt their earnings. Occupancy rates fell at Regus’s 1,000 office centers in 78 countries and the company was forced to lower prices and offer greater incentives to attract tenants.

“While the outlook remains unclear, particularly for the U.K., we are cautiously optimistic across our other three geographies,” Chief Executive Officer Mark Dixon said in the statement. The company plans to accelerate the opening of new centers this year, he said.

Regus climbed 3.4 pence, or 3.8 percent, to 90.55 pence at 9:38 a.m. in London trading, the biggest increase since Jan 6. The shares gained 74 percent in the 12 months to March 19, compared with a 52 percent gain for the FTSE All-Share Support and Services Index in the same period.

Average revenue per available workstation fell 7 percent to 6,535 pounds from a year earlier and occupancy declined to 77.7 percent from 82.9 percent a year earlier. In the U.K., where a fifth of Regus’s workstations are located, revenue dropped 13 percent to 191.4 million pounds.

Rent Negotiations

Regus is seeking lower rents and other cost reductions from some of the landlords it leases office space from in the U.K., Dixon said.

“We need rents down to a market level so that the centers can trade normally,” the CEO said in a telephone interview. “We are trying to do it consensually,” by offering to sign long leases and share profits when business recovers, he said.

Regus lifted its second-half dividend to 1.6 pence from 1.2 pence a year earlier. That lifted the total payment for 2009 to 2.4 pence a share, up from 1.8 pence in 2008.

The company has net cash of 237 million pounds, which Dixon said will be used to finance an expansion into 10 new countries, including Oman, Senegal and Estonia.

The company plans to increase the number of workstations it operates this year by as much as 15 percent, chiefly in Asia, the U.S. and Brazil, Dixon said.

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