Real Estate
Office market provides opportunity
Market knowledge and lead-time could provide favorable negotiating skills for tenants.
By Troy Sympson
Smart Business Miami | December 2007
Rashid Siahpoosh
Vice President of Tenant Advisory Services
Transwestern
The commercial real estate market can
be difficult to navigate. Tenants, or
prospective tenants, have many decisions to make and, often, when it comes to
real estate, they are not equipped with the
market knowledge or time to create the
proper leverage for their tenancy. It all
comes down to core competency. Most
businesses have enough trouble allotting
the appropriate time and resources to their
primary business; when it comes to ancillary business decisions like occupancy
strategy, a third party real estate consultant
may prove valuable.
Rashid Siahpoosh, Vice President of
Tenant Advisory Services located in the
Miami office of Transwestern, represents
tenants and space users and helps them
achieve corporate office space, business
park and build-to-suit objectives. He helps
line up real estate needs with overall corporate goals, by choosing the best sites, analyzing possible financial alternatives and
increasing operating efficiencies while controlling costs.
Smart Business spoke with Siahpoosh
about the commercial real estate market and
how companies can properly prepare for the
present landscape and future opportunities.
What contributing factors may affect an office
tenant's decision process in South Florida?
The primary factor that tenants need to be
aware of is the increase in rental rates over
the last 18 to 24 months. There are both
micro and macro economic drivers that
have created this ‘landlord-friendly’ market.
The most simple, yet important, driver goes
back to the basics of supply and demand. As
the general economy has strengthened, corporate America has seen growth that has
positively impacted tenant demand for
space. Conversely, very little office space has
been developed, as much of the land that
could have been used for office development was slated for residential projects.
Independent of the rental rate increases, tenants have also felt the added burden of exponential growth in real estate tax and insurance expenses. We have had good hurricane
seasons the past couple years, but being that
we are in Miami, tenants need to be made
aware of how their occupancy decisions affect their corporate bottom line through
both exposure to operating expense increases and disaster preparedness.
Can tenants take advantage of office condos
in the market to help to alleviate rental ‘sticker shock’?
Office condos have been a hotly debated
topic in the South Florida office market.
Can office condos act as a viable alternative
for a particular type of tenant? Yes. Much of
the available product, both ground-up development and conversions, has given tenants
their own version of ‘sticker shock.’
Ownership makes sense for certain companies that are at a part of their life cycle
where they are basically operationally stable in terms of size. There are wealth creation and tax advantages present in an ownership situation. However, the pricing of
most of the currently marketed office condo
product is well beyond the point where
such economic benefits can be realized.
Will new construction help alleviate some of
the supply issues?
Clearly, new construction will increase
supply and thus give tenants additional
options and leverage within the market.
However, that does not necessarily mean
that all tenants with leases that expire at a
time when new product is delivered are better off than those clients that have expirations prior to that period.
Let’s take the Brickell/CBD submarket as
an example. There are three sizeable projects planned to be delivered to the submarket in the 2009 to 2010 time frame.
Intuitively, one might think that a tenant that
expires at that time would be better off than
a tenant that renews, relocates or recasts
prior to that time. That is not necessarily the
case. The proposed buildings are going to be
marketed in the high $40s to low $50s per
square foot. That means that both Class A
and Class B product will continue to rise
beyond their current levels before we experience a plateau. Thus, given the direction of
the particular market and depending on the
specific nuances of a company’s size, credit,
economic drivers and forecasted operational needs, it is possible that the entity
might be better off addressing its leasehold
in the next 12 months rather than waiting.
What are some ways a firm can use market
knowledge to its advantage?
Tenants have to be educated and made
aware of the market. They need to know
their position in the market and how to
best leverage that position to create a
favorable negotiating stance with prospective landlords. This goes back to timing.
Whether the firm’s lease expires in six
months, 18 months or three years, it needs
to have an occupancy strategy in place that
takes into account the status of its building,
the market, and the company’s internal
economic and operational drivers. Without
the proper lead time, it is extremely difficult for a tenant to create the appropriate
leverage for its tenancy.
A tenant advisor can make sure such
tasks are completed on time to help insure
a successful and cost-efficient process.
This is where our group steps in.
RASHID SIAHPOOSH, is Vice President of Tenant Advisory
Services located in the Miami office of Transwestern. Reach him
at (305) 808-7822 or rashid.siahpoosh@transwestern.net.
