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Friday, Sep 30, 2022

New Trends Can Affect Office Leasing Decisions

Even in the best of times, the complexity of leasing commercial real estate makes it challenging. Add the economic stressors of the current situation and it becomes downright nerve-racking. Today, it is not enough to concentrate solely on rental rates, vacancy rates and concessions, such as free rent, even though those factors get a lot of attention. Here are a few emerging trends to keep in mind before you sign on the dotted line. They can have a major impact on the risks and costs associated with commercial property leases.

Ask to see your landlord’s financials. In the current real estate cycle understanding your landlord’s financial position is crucial. Although San Diego has a relatively low default rate, many landlords refinanced and took equity out of their properties during 2005-2007 in a period of peak valuations. Now those notes are maturing, and in today’s lending environment, those landlords will simply not be able to refinance. They may eventually give the building back to the bank.

Knowing your landlord’s financial situation can be instrumental in structuring your negotiating and overall real estate strategy. For instance, if you are considering renewing your lease, now would be the ideal time to consult your real estate attorney and ensure your lease appropriately protects your occupancy rights through a non-disturbance and subordination agreement which recognizes your lease in the case the bank becomes your landlord.

What Will You Need?

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Determining just how much space a company will need in the future is no easy task. Signing a five- or 10-year lease requires one to consider various growth scenarios, many of which are utterly unpredictable. Taking a calculated risk, tenants will often sign leases for more space than they need.

An experienced space planner and/or architect can offer insightful and cost-efficient solutions for orderly growth within a confined space. The latest generation of modular furniture and moveable wall systems offer enormous flexibility. Growth may not require more office space in the future. Advances in mobile and networking technologies have led to alternative workplace strategies, such as open office settings, shared office space and more off-site work space, which result in significant opportunities to reduce space.

Office space design that provides more collaborative spaces for face-to-face contact can lead to better performance, innovation, creativity and morale. Having direct and unobstructed walkways to exits, printers and break rooms is also important.

Staff kitchens and break rooms always sound great in theory, but end up with less-than-anticipated use — typically because it is not productive space and employees find other places to meet and socialize. To boost usage, offer Internet connectivity, natural light, and comfortable furniture that encourage use, making them informal meeting rooms.

Impact of Cloud Computing

Your information technology person should be involved in the process from the start. The advent of cloud computing, which moves a company’s servers to an off-site data center and can enable a company to access hosted exchange, hosted voice PBX services or other virtualized services from remote locations, is poised to have several significant effects on space requirements. Companies will no longer need to build, maintain and oversee expensive, climate-controlled data centers in their offices, according to Jerry Morris, founder of NextLevel Internet. “This will lead to less capital expenditures and less monthly expenses, as companies share the costs of equipment, personnel and real estate,” he said.

The move to cloud computing will also give companies greater latitude with regard to their office location. Using the cloud, companies can locate virtually anywhere and employees can access the company’s technology from off-site locations. Cloud computing technology has long promised to exponentially increase storage, and that ability has finally become a reality.

In leasing and in life it’s always good to look beyond the obvious to avoid the pitfalls and take advantage of the opportunities.

Tom van Betten (along with Andrew Ewald) leads Cassidy Turley’s Tenant Advisory Services Group. Van Betten can be reached at 858-546-5488 or tvanbetten@breb.com.


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