What Does a Banner Year in Commercial Real Estate Mean for You as the Tenant?

With NC recently receiving so many accolades for business and employment opportunities, it’s no wonder the commercial real estate market is skyrocketing!

Forbes ranked NC as the #2 best state for business and careers this year after reviewing business costs, labor supply, regulatory environment, economic climate, growth prospects and quality of life.  Site Selection, which provides data to governments, investors and corporations, ranked NC as the #2 state for business climate based on the number of capital investment projects along with other pertinent data points.

The Raleigh-Durham area might be seen as a launch pad for such skyrocketing with its increased activity in commercial real estate. Institutional and individual investors alike are divesting and purchasing numerous buildings and land sites. And while 2015 saw new office buildings like Charter Square, Wade III and Alliance Center offer additional office space for lease, vacancy rates continue to decline and rents continue to escalate.

A recent article in the Triangle Business Journal reported that the asking rent rates for Class A buildings across the Triangle averaged $19.40 per square foot in 2005 and $21.44 per square foot in 2012. The article continued by stating that a review of the Triangle Business Journal’s third quarter “Space” report showed that six out of the 15 buildings in the region quoted their lease rates at $29 per square foot or higher!

So what does this mean for you as the tenant?

1. Start well in advance. Inventory of available office space at all class levels is low and multiple tenants are competing for the same spaces. Whether searching for new office space or negotiating the renewal of your existing lease, initiate the process sooner rather than later. A good rule of thumb is to begin at least 12 months in advance. This allows sufficient time to find the best space, negotiate the best terms, and build the best floor plan.
2. Engage a tenant representative. In an ever-changing market, it’s difficult to navigate the complex commercial real estate arena, especially without the market knowledge, transaction expertise, and negotiation skills required for success. Besides, you have your own business to run! Engaging a commercial real broker to serve as your exclusive Tenant Representative is one of the most prudent steps a tenant can take.  Tenant Representatives provide advice, guidance and counsel throughout the entire process whether you are searching for new space or contemplating a renewal. They put your interests first – not the landlord’s or their own. Tenant Representatives are obligated to work diligently on your behalf to negotiate and achieve the best deal for you. And compensation for your tenant representative's services is typically paid by the landlord or the landlord’s broker. So the service is in essence free to the tenant.
3. Establish a budget. It’s best to have a budget established before embarking upon the quest for space. Your Tenant Representative can provide insight into the current market conditions and rental rates which will help you establish a realistic budget.  Setting a realistic budget and sticking with it provides a great foundation from which to negotiate.
4. Have options. In a tight market where vacancies are low and demand is high, many tenants are vying for the same space. Between multiple tenant offers and negotiations of financial terms and lease language, your ideal space can evaporate into thin air. That’s why it’s critical to select a minimum of two, but preferably three, spaces that are suitable for your business for negotiations. Should the deal terms not be acceptable or another tenant steal the space before you sign a lease, you’re not left empty handed and having to start the process over completely.
5. Be open. Finding the perfect space with the perfect lease terms is like finding a pot of gold at the end of a rainbow! It’s great if it happens, but chances are it’s not going to occur. However, selecting the right space to support your employees and your business growth is important. Be open and consider options not previously contemplated. As with many aspects of business, the best solutions tend to surface when there is an air of openness and collaboration to achieve a common goal.

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Kim Mills is a commercial real estate broker specializing in tenant representation services. Her unique combination of commercial real estate knowledge and human resource expertise enables Kim to develop and execute workplace strategies that positively impact the people, productivity and profitability of her clients.