The office landscape in the Orange County, Calif. market is making its long-anticipated shift. While this is a clear and positive reflection on a recovering economy and local job creation, this shift is impacting both landlords and tenants in very different ways. As supply continues to dwindle in many of the sub-markets, tenants are left with fewer properties to consider and as a result, less clout in office lease and sale negotiations, leaving landlords with the leverage.
In this competitive office setting, it’s important for tenants to be proactive and prepared when considering a move, expansion or lease renewal. Listed below are a few important items that every tenant should review to aid in their chances for a favorable relocation.
1) Space Programming: Know your space needs (headcount, parking, product type) and your desired configuration and finish (contemporary vs. open plan). Time and money spent during the transaction cycle developing plans will put you at a competitive disadvantage with other prospective tenants.
2) Create a Budget: Anticipate -fit costs and funding challenges. Contemporary, open-plan up-fits cost $50-$55/ square foot whereas most building owners will only spend $25-$30/ square foot, leaving a $25/square foot funding gap. Tenants should know where they are willing to give. A landlord may choose another potential tenant based upon a less-costly up-fit.
3) Plan Well Ahead: When renewing in place is not desirable or possible, tenants should enter the market 12-15 months in advance of their lease expiration (30-36 months, if a user seeking 50,000+ square feet) and should be prepared for the possibility of committing to a space several months in advance of a current lease expiration. With planned and proposed development projects taking 18-36 months to deliver, tenants can find themselves boxed-in, needing to renew short-term or move part of its operations to another location.
4) Get Ready to Date: In a tight market, landlords have the luxury of interviewing prospective tenants and selecting those who best fit their risk profile and their asset’s needs. Tenants should have up-to-date financials and business plans available and be ready to share and defend them.
5) Be Decisive: Tenants thinking that they can take their time to consider multiple options, leverage every last nickel of savings, and navigate a lengthy internal approval process, will likely find themselves needing another solution.
6) Do You Have a Plan B?: Where possible, every tenant should keep a ‘plan B’ in their hip pocket, whether it is to renew in place, acquire space in an alternate property or even to move to another sub-market.
7) Get Help: One final word of advice is to leverage the knowledge and resources of a local real estate professional. This will not only make you an educated consumer, it will enable you to stay focused on your day-job while your advisor navigates these now-tricky waters.
Although the office market is shifting away from the tenants favor, don’t despair. Have heart that it remains, and will always be, an open and dynamic marketplace. Great values and opportunities exist and new ones are evolving every day. With a blend of preparedness, focus and flexibility, you can both discover and take advantage of opportunities when they materialize.
By Randolph T. Mason, CCIM, SIOR, Partner, Commercial Realty Specialist