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Office Space Market Update

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Recently our Local Rep in Milwaukee gave a speech for the Milwaukee Institute of Real Estate Managers chapter providing them an update on the current office space conditions in the area. While reading it over I realized that Milwaukee office space market is pretty typical of the office market in general everywhere.  Here is the shortened text version of presentation.

The total office market is just under 28,000,000 square feet of class A and B space.   Of that just under 5,000,000 square feet or 17% is vacant

In 1981 net rents were $10 per square foot for suburban Milwaukee class A office space.

In January of 2001 we said in our annual report to the market:

“Rents are at or above their last peak in the mid-80’s, but they are real rents, not laced with large concession packages.  Rents continue to show steady growth”  In 2001 suburban class A rents averaged $14/SF NNN.   

And what happened in 2008?  Real net rents dropped.  With inflation those rents should now be $19.50/SF NNN.   But they are not.  And that is really good news for tenants.

Net rents today, for suburban class A office space are on average

$13/SF  which is $1/SF lower than they were in 2001.   Class B space in recently renovated buildings is an even better deal.

This is a great time for tenants.   Landlords are giving significant concessions to new tenants and to tenants who are renewing their leases early.  Tenants can get free rent or above standard concessions in exchange for a lease commitment.

Among the best news for tenants in 2009 is the amount of sublease space that will be added to the market. Chase, Wachovia, and other financial firms have recently announced layoffs. Citibank is selling Smith Barney to Morgan Stanley    That means that these companies will put their excess office space on the market.  Whether or not they find tenants for that space, the mere fact that the space is available will have a negative impact on lease rates for the market in general.   In some cases these subleases will create interesting and financially advantageous situations for tenants who have some flexibility.  Given this, I think net rents will continue to decline through out 2009  

Tenant Improvements

In the old days, Landlords could borrow the money for Tenant Improvements and either include the payback in the tenants lease rate or amortize the TI dollars over the term of the lease. Now, Tenant Improvement dollars can be difficult for landlords to obtain or borrow.  Sometimes the term of the loan is shorter than the term of the lease.  This is a problem for landlords and it is a problem for tenants.

In a turn around from the old days when tenants were the only ones who had to prove they were credit worthy tenant rep brokers are now asking landlords to provide proof to the tenants in advance that they as landlords have the financial resources to complete tenant improvements and this is before the tenant will even look at their building. 

Milwaukee office submarkets overview

Downtown East is still a strong submarket attractive to many tenants.   Several new Class A buildings are proposed and there are 3 or 4 large Class A tenants looking for space in the next three years.  Normally this would mean we could expect to see a new tower being built in downtown Milwaukee.   But, right now – nothing is normal.  In the short term vacancy rates will rise, absorption will be negative, but I do not think that lease rates will change in 2009.

The real excitement in Downtown Milwaukee in 2008 was west of the river.   And I cannot tell you how many years I have been waiting to say that.F ederal Plaza, Schlitz Park and The Brewery all signed new tenants, all of those tenants are new to this submarket.   The result was 200,000 square feet of positive absorption in 2008.   

Brookfield.  This market was built to accommodate the expansion of office tenants from the relocation and the inner suburbs in the 1970’s and 1980’s.   Although many buildings are well maintained they are starting to show their age.  A careful review of the market will help tenants find hidden gems with quality management and very attractive lease rates.

Mayfair.  This is a market with 2,500,000 square feet of space and a 17% vacancy rate.   The Forum building was taken back by the lender and I think this will mean some very aggressive lease rates in the short term.   

The North Shore.   Just under 2,000,000 square feet of space.  The good news is that office tenants are finally finding their way to Bayshore and they are getting attractive lease packages.   

Park Place.    This is a market that caters to tenants who occupy large blocks of space.   The vacancy rate is just under 16%

The South side, West Allis and the airport. This is a market that is looking for respect.   There is no question that 2009 will show increased vacancy and lower lease rates.

The Third Ward and Walker’s Point.   I think that the numbers for this market are deceiving.  Because there is only 1.4 million square feet of space even a gain or loss of 20,000 square feet appears to be more dramatic than it is. There have been new tenants moving in, existing tenants moving around and a significant trend towards tenants becoming owners of office condo’s.  This market is going to continue to be a generator of economic activity and that it will remain attractive to tenants as well as companies who want to own their own space.

Outlook for the future.

There is no question that lease rates will stay flat or decrease. I also expect landlord concessions, including free rent to increase

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General , Milwaukee office space , Office Space

Guide to Office Relocation - Part 3

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Prepare RFQ’s for Movers and Facility Requirements

An RFQ (Request for Quote) is a request that a company puts out when they want to hire contractors to perform a job, and is basically their way of encouraging contractors to bid against each other. The company that issues an RFQ then selects one of the vendors to take the job.

In order to minimize business downtime and unexpected costs, it’s important to prepare an RFQ for critical facility requirements such as: Insurance for property and casualty, HVAC systems, voice and data cabling and integrity, local telecom facilities and accessibility, and voice and data network circuits.

An RFQ is also important to clearly state your requirements to prospective moving vendors.  The following should be considered as components of your Move RFQ:  Time-line including dates for vendor site visits, special disassembly of office systems, modular furniture, and technology equipment, damage prevention concerns, timely setup for business resumption, and reservation of moving dates and times including contingencies.

Selecting a Commercial Moving Provider

Always select a moving company with a history of successful office moves, as they are different than residential moves and require different equipment and skills.  Costs will vary between companies as some charge an hourly rate and others are based on volume/weight.  You may also pay a premium if you opt to move during non-working hours or on the weekend.

Most commercial moving companies will offer two types of estimates: a non-binding estimate which means your final price will be based on the actual amount of hours and materials used on the job; and a binding estimate which gives you a guaranteed price that won’t exceed the amount quoted.

A non-binding estimate can be beneficial if:

  • You are not exactly sure of all the items you will be relocating ahead of the move date.
  • You are not sure if you will be ready and may require additional packing help.
  • Your move will involve an unusual amount of details, or the handling of sensitive equipment.
  • An elevator cannot be made available for exclusive use during part or all of the move.
  • Construction or other improvements that the mover has no control over may slow progress.

A  binding estimate or flat rate for the moving services is preferable if:

  • You want to guarantee your relocation budget.
  • You haven’t moved often, and are not familiar with the process.

Requirements you must meet in order to receive a binding estimate:

  • A detailed inventory in writing must be agreed upon by the client and the moving company.
  • Packing, tagging, assembly, etc.  - any service required must be in the written binding agreement.
  • Elevators must be for movers exclusive use.

In the next part of our series ‘Guide to Office Relocation’ - Part 4 we will explore other considerations surrounding selecting a commercial mover.

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General , Office Relocation , Office Space

Guide to Office Relocation - Part 2

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Fail to Plan - Plan to Fail

Again, the most important part of of an office relocation is to plan everything out in advance as much as possible. Businesses are about making money, so if your company is not up and operational but rather moving, then you are not making any money. The major goal in an office relocation is to be cost-efficient. One of the ways to achieve this objective is to be time-efficient. The less time you spend relocating, the more cost-efficient the process will be for your business.

In order to save time, make sure you are very familiar with your new location and offices. Know exactly how large the new spaces are. Notice any differences in shapes of the rooms or new furniture. Ensure your old or new desk, chairs, filing cabinets, etc. fit inside your new space.

To make sure that everyone knows their new dimensions, a floor plan should be created before the move. This plan should include, by floor, location of employees, furniture, plants, and whatever else you are moving to your new location.

See that every employee receives a copy of this plan and post them throughout the building on moving day. Being organized before the move will not only reduce the stress for employees, but for the movers as well.

Communicate Openly and Often

Communication one of the most important factors when it comes to office relocation, so keep everybody informed of the exact moving plan, as the fewer questions on relocation day, the better.

Keep in mind the movers will need to be directed exactly where each piece of furniture needs to be placed. If you have many desks that look the same, but belong to certain employees, make sure they know that they need to go in particular places.

One way to facilitate the process is by using colored labels. All of the furniture that belongs on one floor can be labeled a certain color and you can even get more specific if required. Label colors and numbers to each employee, and all equipment and furniture that is being moved. The label needs to be placed in spot that is very easily visible to the mover.The easier and more understandable you make the move to the mover, the faster and more cost-effective the relocation will be.

In the next part of our series ‘Guide to Office Relocation’ - Part 3 we will go over preparing Request For Quotes (RFQ’s) for commercial movers and facilities product and service providers.

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General , Office Relocation , Office Space

Is an Open office plan making you sick?

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I found an interesting health article related to office space. It is a little worrisome.

The evidence is overwhelming - working in an open plan office is bad for your health.

Australian scientists have reviewed the global pool of research into the effect of modern office design, concluding the switch to open-plan has led to lower productivity and higher worker stress.

"The evidence we found was absolutely shocking,'' said researcher Dr Vinesh Oommen from the Queensland University of Technology's Institute of Health and Biomedical Innovation.

"In 90 per cent of the research, the outcome of working in an open-plan office was seen as negative, with open-plan offices causing high levels of stress, conflict, high blood pressure, and a high staff turnover.

"The high level of noise causes employees to lose concentration, leading to low productivity, there are privacy issues because everyone can see what you are doing on the computer or hear what you are saying on the phone, and there is a feeling of insecurity.''

Dr Oommen said there was also a higher chance of workplace conflict caused by "sitting so close to someone that each time their phone rings you can get irritated''.

"I think most of us, including myself, can relate to that,'' he said.

Working in an open-plan office could contribute to higher blood pressure, Dr Oommen said, and an increased risk of illnesses as bugs such as the influenza virus were more swiftly passed around.

"Based on these findings, I think employers around the country need to rethink the open-plan environment in their offices,'' he said.

"The research found that the traditional design was better - small, private closed offices.

"The problem is that employers are always looking for ways to cut costs, and using open-plan designs can save 20 per cent on construction.''

Dr Oommen's study has been published in the Asia-Pacific Journal of Health Management.

In the Australian from the Australian Associated Press

General , Office Space

Office Relocation Guide - Part 1

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Every year, thousands of businesses across the country relocate their offices to new space. Many have grown too large for their current space, while some companies are down-sizing to smaller, more cost efficient offices. Still other businesses may be relocating to a new geographic area offering lower operations costs. Whatever your particular reason for making a change, moving a company requires a lot of thorough planning, open communication, and hard work. It is much more than just hiring a moving company. There are literally hundreds of tasks that need to be completed to accomplish a smooth move.

One of the very few events that may be more stressful than a residential move is a corporate relocation! Most people are totally unfamiliar with how to prepare for a corporate move and the process can be quite overwhelming to the inexperienced. Without proper planning, you may find yourself with a digital copier too large for its designated space, a phone system without enough telephone lines, or movers being paid to stand around and wait while employees pack up their belongings.

This Guide is designed to inform you of some of the most important issues related to an office relocation, and to help you avoid costly mistakes during the process.

Start with a Comprehensive Moving Plan

The key to assuring success with any office relocation is planning everything down to the smallest detail. As part of the process of planning an office move you should first determine who will be on the relocation team and what you can handle in house and what might you need or want to outsource.

If you are considering hiring a relocation consultant to manage the move process only, you may be wasting your money. Most reputable office moving companies will assign you a project manager to assist you with the process from beginning to end. However if you need a consultant to help with space planning, furniture purchases, implementing new technology, etc., then a relocation consultant could be a valuable resource.

Factors to Consider When Planning a Relocation

Technology Systems Planning - What is the current status of your high tech equipment? Since most companies renew their technology every 18 to 36 months, is this an opportunity to upgrade or expand your systems?

Asset Management Planning - Audit your existing assets. What’s worth moving in the area of technology and furnishings? What should be replaced or upgraded? Can you install what you’re moving in the new facility or are there obsolescence and incompatibility issues?

Space and Interior Design Planning - Whether you elect to handle the space planning or to use a consultant, building floor plans drawn to scale are very important. Drawings that are reasonable facsimile representations of your space can be very misleading and create substantial problems on moving day. Once you have the ‘big picture’ settled you can focus on special details for decorations, artwork, enhanced lighting and plants.

Space Requirements Analysis - For space planning purposes compile a roster of personnel and their anticipated space needs as well as a detailed inventory list of the minimal space requirements for all machinery and office equipment. Once you have your roster and equipment list compiled, you can easily determine your total minimum space requirements.

Business Requirements Analysis - Employees should be consulted for specific preferences and requirements. Once all the information has been compiled, you will be prepared to complete a ‘needs analysis’ of business requirements and preferences. Develop a ‘must-have’ priority list from your requirements list to help you identify which areas of your business need the most attention. Also develop a timeline for your requirements list that includes the start date and the projected completion date for each item.

In the next part of our series ‘Guide to Office Relocation’ - Part 2 we will go over some things that you will need to consider in the organization and planning stages of your Office Relocation project.

General , Office Relocation , Office Space