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What Does it Mean to be an Office Tenant in an Improving Market?

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After some really bad times, the office market in US finally began a slow but steady recovery in 2011. Ryan Severino, senior economist for REIS said, “During 2011, the office vacancy rate declined by around 30 points when compared to 2010.” The result of this decline is that rental rates rose by about 1.6 percent, the first increase sine 2008. While this is not a huge increase, the recovery trend is expected to continue on a steady basis.

Office tenants in this market experience fear and doubts about where the economy is going. According to Ken Ashley, senior director of Cushman & Wakefield’s Atlanta office tenants are focusing on using floor space more efficiently, resulting in a trend for office tenants to seek out offices with less square footage, a trend called “density with dignity”.

So what does this mean to office tenants seeking to lease an office?

  • Increasing Office Rents: As noted above, the rental rates are rising slowly but steadily, so negotiating a new lease or moving to a different office space may well mean paying more per square foot than just a few months ago. Since this trend is expected to continue, if you are considering moving your office, it is better to act quickly than wait; if you delay, you will only pay more.

  • Reduced Incentives: Recently, it was an office renter’s market and renters were able to shop for incentives that appealed to their situation. For example, some landlords offered tenant improvement allowances while others offered special rates to long term renters. These incentives are very soon to be greatly reduced as the vacancy rate continues to decline and spaces fill up. Once the rental market turns a corner, the incentives will vanish completely. Again, making it the best time for tenants to make any changes being considered for the near-term future.

  • Fewer Office Space Alternatives: With changes to the rental market, the choice afforded the potential renter will be reduced. Today, many renters are seeking to move to more flexible floor plans and smaller spaces. This may well leave a wealth of larger offices at increased cost per square footage available, but this may well be exactly what you want to change for your own office. Those seeking the perfect spaces for flexible office spaces and non-traditional spaces, such as serviced office space, may find themselves at a loss for locating the space that would have readily been available only a short time ago. A matter of weeks can change the market in this area and business people take advantage of their last days of incentives and broad selections.

As with any period of recovery, whether in the commercial office market or the general economy, it is difficult to see into the future. But trends today give us the best insight into where you may find your business rental needs in the near-term future. Today is the best time to make a move and only a few months from now may be entirely too late to reap the benefits remaining

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By: James Osgood

Office Leasing Tips , Office Rental , Office Space Negotiations , Office Vacancy Rate

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