Are We In a Landlord Market?

Question: What is a Landlord market? A Landlord market is when the psychological energy level in a lease negotiation is flowing toward the Landlord.

The speed in which we move from a Tenant market to a Landlord market can cause whiplash. After 40 years in this business I am still surprised by just how fast the market can turn. In a Landlord market, Landlord’s pull in their reins tightly, offering less incentive dollars like free rent or high end construction allowances. They are far less likely to come off their asking price. This can make for a much more frustrating negotiating experience for tenants.

Last week I had the pleasure of conducting a tour of space in one of the most vibrant office markets in all of New Jersey — Metro Park. For those of you who don’t know this landmark, Metro Park is located right off the Garden State Parkway at Exit 130A. Its unique attribute is train access to New York City and Philadelphia via the Main Line. Location – Location – Location!

What I found was, not only was space extremely tight, but the asking price averages in the mid $30 per square foot range for new Class A space. Class B space in this market is in the mid $20 per square foot range. This leaves a spread of $8-$10 psf. That is huge. In most of New Jersey the difference from Class A to Class B is closer to $3 per square foot.

When the market shifts, sometimes we don’t have sufficient time to make the mental adjustment to the facts on the ground, especially when the terrain is changing right under our feet. The shift from Tenant Market to Landlord Market can be very swift.

So, what is the importance of understanding what is going on? One of the most important roles of a tenant advisor is to help guide the expectations of their clients so they can help the client to visualize the type of deal that is achievable. You see, just two years ago Metro Park had a comparative glut of space, and the Landlord incentives there were very favorable to the tenant. When the shift occurs, Tenants must accelerate the pace of decision making, and in today’s tight economy that can be very stressful. When there are fewer available spaces to choose from the likelihood that you can lose out on your first choice of space to a tenant competitor increases.

Understanding the business terms that a tenant/client needs to achieve is vital to developing an effective strategy to produce favorable results. A tenant rep will work with you in a collaborative fashion to design and implement effective strategies to accomplish your unique set of objectives. Knowing the parameters that must be achieved, and working together with your advisor as a team to implement the agreed upon strategies will increase the likelihood of a successful outcome.

What I do know, is that what goes around comes around. Today’s landlord market will become tomorrow’s tenant market. Knowing that your Real Estate Advisor has the skills to help you weather the storm in any market can be a great comfort. We look forward to collaborating with all of you to achieve your business objectives or as I like to point out, “Our Difference Is Your Advantage®”.

Regards,
Lawrence Dickstein