As most of us know, on the average leasing activity levels in the US office market have declined over the past 2 years. Nothing new here, and the only positive thing is the rates of decline have been smaller than the previous reported 3-month activity. The reasoning behind this slow activity is a result of tenant’s hesitancy to set aside capital and make a business decision. Most real estate experts believe the leasing market is nearing the bottom, thank goodness!
Some office markets were hurt more than others like Raleigh/Durham, Miami, Jacksonville, Atlanta, Austin, Houston, and I could go on, but quite a few major markets have felt the pain. Most of the leasing volume during 2009 were driven by lease expirations. With the hesitancy in the marketplace, tenants are signing shorter term leases and/or renewals further delaying their decision to make a long term commitment. Now this is not true in all cases as we have seen a number of deals where tenants have signed a 10 year lease but this is in a market (Washington, DC) not affected quite as much as some of the other markets mentioned above.
Low demand and the upward swing in sublease space have forced landlords to reduce rents in order to create some demand in their office buildings. Longer rent abatement periods and higher tenant improvement dollars has helped to create some activity but at what point does the landlord draw a line in the sand?
I don’t want to paint “doom and gloom” everywhere but vacancies will most likely continue to grow over the next 6 months. Companies with lease expirations coming up will most likely re-evaluate their business and take the opportunity to either downsize the amount of space they plan to occupy or come out with the mentality of “shop until they drop” for the best deal they can find. Competition is, and will continue to be fierce with brokers and landlords on the front line.
This is where building owners and property managers must take the initiative and make their property shine 24/7. So many times I have walked into an office building to see the metal shining and the floors waxed to a glow so sharp I could see my face in it. I turn around and walk into one of the vacant office spaces to find that the floors haven’t been vacuumed, dust building up on the window sills, trash on the floor or materials stocked in the space due to a lack of storage or someone just being lazy.
Property managers need to consider making a deal with your janitorial service and split the vacancy credit or do something to off-set the cost for regular cleaning of you vacant spaces. There is just no excuse and what do you think is going through the mind of a prospective tenant when they see a vacant space that has not been cleaned in a couple of months?
I realize keeping operating expenses down is important, especially with the current market conditions what they are. But trust me, if you lose a deal because of negative feedback from a prospective tenant, you may find yourself looking for another building to manage. This is basic property management but you can get so busy working on other projects that you overlook the basics and I can tell you from first hand experience since it has happened to me. I can also tell you that I learned my lesson and it only takes one embarrassing moment to learn the hard way.
So stick to the basics and do them well. Eventually the market will return, your building will shine and you my friend, will also. Listen to the video below and you will hear from a 3rd party, exactly what you should be doing as a manager.
