The office market continues to favor tenants. Market indicators show no immediate sign of reversing this trend. It’s likely that 2009 will be remembered as “The Tenant’s Year” as the real estate pendulum continues to swing in their favor. Current trends include:
Blend and Extend
Early renewals in exchange for tenant-favorable terms.
Focus on Second Generation Space
Tenants and landlords are reluctant to part with the capital required to build tenant spaces from shell condition, especially given the many second generation options available.
Uncertainty on the part of tenants and landlords has resulted in a fear of commitment. Tenants fear a long term lease liability in the face of economic uncertainty. Landlords are concerned about being locked into today’s (low) rates when the economy rebounds.
Impossible to Pick the Bottom
Despite the search for a clear “turning point” at which the market shifts back to positive, a less transparent “bounce” along the bottom is more likely. In other words, we won’t know that we’ve hit the bottom until 6 to 12 months after the fact.
Tenants with lease expirations in 2009 or 2010 should be talking to their brokers about strategy; the opportunities have never been greater.