With the bad economy, this sounds like an idea to stretch the leftovers! In fact, it’s a strategy that can prove very profitable with the coming – we predict – drop in Denver commercial office rental rates. With unemployment numbers rising, office vacancy rates will continue to increase. These office vacancies, however, tend to lag the rise in unemployment.
As office vacancy rates rise and more sublease space enters the market, office lease rates will decline. The decline will be especially pronounced in buildings that have suffered significant tenant losses and have vacancy rates in excess of 20%. At these buildings, Landlords are motivated to keep tenants – especially tenants that have relatively strong financial positions. And some of these Landlords will be willing to enter into “Extend and Blend” negotiations, where successful negotiations conducted by a skilled commercial real estate broker can lock in lower lease rates today (thereby reducing the current higher rates) in exchange for adding lease term to the back end of the lease, but at today’s and predicted future lower lease rates.
These negotiations can be about more than just lease rates. Discussions can include additional tenant improvements that may be needed – everything from new carpet and paint, to refurbished break areas or even more extensive renovations. Additionally, the negotiations can include right-sizing the space, to shed, for example, square footage that the business no longer needs. Additionally, it may be possible to add missing lease flexibility provisions such as future expansion rights.
But, you say, “So what! I still have over two years left on my lease, what can I do?” Two years of remaining lease term may be OK, if the Tenant is willing to add three (5) or more years to the current lease term, especially if the Tenant has a stable or strong financial situation.
The key to success is to start planning now, such that you can develop a strategy that can be applied at the appropriate time. With Denver office vacancy rates increasing, the time is fast approaching to Extend and Blend!
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The Guidance Advantage
Guidance Corporate Realty Advisors provides corporate tenant / buyer representation services to corporate real estate users in the Denver metropolitan area including Boulder, Colorado. Guidance also provides these services in all major U. S. markets, as well as markets in Canada, Asia, South and Central America, and Europe.
