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Office Utilization Far Less Than Expected

Post By : admin 12 January 2017 Leave a comment

Bisnow.com had an article on their website today which started by citing a study by the Harvard Business Review (HBR). It said that “office utilization peaks at 42% on any day, forcing an overhaul of how efficient spaces are designed.” The article goes on to talk about how this is changing the way offices and office campuses are being designed.

But what caught my attention was the 42% utilization. They don’t define what that means exactly so we are left to make our own assumptions. It makes me think that only 42% of the space is being used at any given time, or that only 42% of the people the office was built to accommodate are actually there. I’m not really sure, but either way, it sounds like office spaces are not being used to their full capacity.

This is consistent with something I heard at a lunch presentation today by Robert Jimenez of Granite Properties. Robert told a group of commercial real estate professionals that they are building 3.7 parking space for every 1,000 square feet (SF) in their suburban office buildings. But their own study of Granite Park in Plano shows that only 2.2 parking spaces per 1,000 SF are actually occupied on average. This would seem to support the HBR findings.

The takeaway for me is that landlords can allow much greater density in their buildings than previously thought and tenants could lease much less space for the same number of people. Perhaps it would be feasible to lease only 10,000 SF for 75 people instead of the 15-18,000 SF as previously thought. Of course, this will depend on the corporate culture, how many people get private offices, and, most importantly, whether the landlord can be convinced to allow this.

For creative ways to solve office space needs, please find us at www.texastenantrep.com.

Bob Gibbons is a Real Estate Advisor & Tenant Advocate with REATA Commercial Realty, Inc. which is a tenant advisory firm based in Plano, Texas. Bob serves companies in Plano, Frisco, McKinney, Allen, Richardson, Addison, Dallas and the surrounding areas and specializes in companies which lease or buy office and warehouse properties.

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Need Flexibility in Your Office Space?

Post By : admin 10 January 2017 Leave a comment

So you need an office space quickly, but need flexibility and don’t want to be tied into a long-term lease. What are your options?

There are times when flexibility is critical to an organization – entering a new market, acquiring or merging with other companies, launching a new product or service, or growing dramatically in the short term.

In these cases, you should first find a corporate real estate advisor who can help guide you through the process and then find and analyze the options. Their expertise and involvement also frees you up to stay focused on your business.

So here are five options that you should consider to solve your need for flexibility.

1. Executive suites

While this option will almost certainly be the highest cost on a per square foot basis, it offers the greatest flexibility, speed and features. The executive suite operator can often arrange for secretarial services, high-speed internet, fax, phones, copier, printer, receptionist, voice mail, and furniture rental, all in the matter of a few days. Some of these services are included in the base rent and others cost extra. You also get to enjoy shared amenities including a kitchen, conference room and video conferencing in some cases.

Rents in executive suites often start around $600-$700 per month for a standard size, interior office. The nicer the building, the higher the price, of course, so the price for a big corner office in a class A high-rise can easily be $1,500-$2,000 or more. But the price will also vary with the length of the lease term (3-6 months is usually the minimum) and the number of offices you lease.

2. Coworking

Coworking is a style of work that involves an open shared working environment with many companies in the mix. Most people associate this with technology companies and young workers, but it’s catching on across all industries and demographics. A member of a coworking space pays a monthly fee and is assigned a desk when arriving each day, but it won’t be the same desk. There are conference rooms, a kitchen and other amenities shared by all. You may be able to lease an individual private office in some locations similar to an executive suite. You may also be able to rent a dedicated desk in the open work area where you can leave your stuff set up all the time.

3. Sublease

When companies vacate their space prior to the lease expiration they will often offer it for sublease to reduce their remaining lease obligation. The rent is usually discounted from the landlord’s asking rent depending on the amount of time left on the lease and whether any furniture is available. For example, a sublease in a building where the landlord is asking $24.00 may go for $18.00 – $20.00. The shorter the remaining lease term, the lower the price.

If you need a longer term than what is left on the lease, you can often negotiate a wrap lease with the landlord. That is a direct deal which commences upon the expiration of the sublease. It allows you to enjoy the lower cost of the sublease and the certainty that you can stay in the space for a longer term.

Subleasing comes with certain risks, however. If the prime tenant is not financially stable and the landlord doesn’t get the rent, you could be evicted even though you were paying the subrent to the prime tenant. Subleases usually are leased in an as-is condition so any changes needed to the space would be your cost. That’s negotiable, of course, but rarely will a prime tenant pay for any significant improvements. Any options to renew, expand or terminate early in the primary lease are usually personal to that tenant and not transferable to a subtenant. Finally, the landlord must approve the sublease before you move in. If the business you are in does not mesh with the landlord’s desired tenant mix or another existing tenant would be your direct competitor, you may be denied.

4. Space sharing

Sharing space with another firm can provide flexibility as well. It’s sort of a hybrid between an executive suite and a sublease. Like an executive suite, you may share services like a kitchen, conference room, copier, etc. Because this is technically a sublease, it comes with the same risks as mentioned above, but with one additional issue – getting along with and trusting your roommate. You must trust the people in the other company and have compatible business styles. You wouldn’t want to have a law firm share with a loud collections company. These companies are both office users, but they use that space very differently.

5. Direct Lease

Don’t overlook the opportunity to lease space directly from a landlord. While they typically prefer a 3-5 year lease, I have seen them be very flexible when a prospective tenant explains the business reason behind the request. For example, one of my clients had been put in receivership, but they occupied office space owned personally by the former business owner. So they had to move quickly. We were able to find a few landlords who were willing to sign a one-year lease while the receivor stabilized the business and found a buyer. We even got a 5-year renewal option at a pre-determined rental rate so a new buyer of the business would know exactly what the lease terms would be if they kept the space.

In the final analysis, business owners and managers will always have to evaluate the trade-off between their desire for flexibility and the risks and costs of actually having it.

Bob Gibbons is a Real Estate Advisor & Tenant Advocate with REATA Commercial Realty, Inc. which is a tenant advisory firm based in Plano, Texas. Bob serves companies in Plano, Frisco, McKinney, Allen, Richardson, Addison, Dallas and the surrounding areas and specializes in companies which lease or buy office and warehouse properties.

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Office Leasing Slows…Really?

Post By : admin 30 December 2016 Leave a comment

In today’s Dallas Morning News (DMN), the long-time real estate reporter, Steve Brown, had an article headlined Office Leasing Slows Down. Let me first say that I like Steve Brown. I have read his work for decades and have seen him speak a few times. His understanding of the real estate business is strong and his sense of history is amazing. But I have to pick a bone with him on this article and others which throw out statistics without proper background and context.

In this article, Steve features a Cushman & Wakefield (C&W) report regarding leasing activity in the Dallas Fort Worth area. The main gist of the article is that leasing activity has fallen by 40% in 2016 compared to 2015. Net absorption is the metric quoted and is the best barometer of demand for office space. Net absorption is simply the change in total office space occupied. For example, if 300 million square feet (SF) of space is occupied today and 303 million SF is occupied on March 31, 2017, then there would have been 3 million SF of positive absorption during that quarter.

The C&W report mentioned in Steve’s article states that absorption in 2015 was 5.2 million SF and it was only 2.9 million SF in 2016. Thus the 40% decline. I don’t have a problem with those facts. What I have a problem with is the impression given in the article that this is somehow an indication that the market is in bad shape. The first sentence of the article states, “Demand for Dallas-Fort Worth office space stalled in the fourth quarter.”

What does “stalled” lead you to believe? That it stopped? Or that it just slowed down a bit? I think most people would assume it means the market has stopped and we should be worried. But it didn’t and we shouldn’t…at least not based on the facts presented. Another 2.9 million SF was occupied and that still represents growth.

The article gives two primary reasons for the slow down. First, companies packing more people into the same space. This is accurate because I’ve seen it with my own clients. For example, it used to be that a law firm would lease 700-1,000 SF per attorney. Many firms these days are only leasing 400-600 per attorney. That’s significant, but it’s also more efficient and technology has provided this opportunity. Law firms have everything online and no longer need law libraries with hundreds of books.

The other main reason given for the slowdown is that large tenants like State Farm moved out of office space into their own buildings. Again, I don’t dispute that fact. State Farm moved out of several buildings and consolidated into its own campus in Richardson.

But was that negative absorption? The C&W report says it was and the DMN article spreads that word. And this is my real problem with the article. It doesn’t mention that only multi-tenant buildings are considered in the report. That is, buildings with more than one tenant occupying it. So when State Farm moved out of 1 million SF of multi-tenant buildings and moves into nearly 2 million SF in its own single-tenant campus, the C&W report (and Steve Brown at the DMN) tell you that represents 1 million SF of negative absorption and, by implication, the sky is falling.

That is misleading. Steve Brown should have disclosed that the report only considers multi-tenant office buildings and should have gone on to shown that absorption of all office buildings is actually 5 million SF if single-tenant properties are considered too. That would have provided a more-accurate picture of what’s going on in the market. A quote from one of the C&W brokers provided an oblique hint to this, but it should have been more explicit in the article.

So while the owners of multi-tenant office buildings may not be filling up their buildings quite as quickly in 2016 as they were in 2015, the overall health of the office building market of all types is strong. If not, rents wouldn’t still be rising. And they are.

You can read the DMN full article here.

Bob Gibbons is a Real Estate Advisor & Tenant Advocate with REATA Commercial Realty, Inc. which is a tenant advisory firm based in Plano, Texas. Bob serves companies in Plano, Frisco, McKinney, Allen, Richardson, Addison, Dallas and the surrounding areas and specializes in companies which lease or buy office and warehouse properties.

Categories: Uncategorized