Lease Rates Down, Tenant Incentives Up!

The office leasing market is in a state of confusion, causing some property owners to implement aggressive lease rates and incentive packages. Incentives, consisting primarily of reduced or free rent, are a given in this market. Anything is on the table, including increased tenant improvement allowances, turn-key build-outs and existing lease buy-outs. Expect to get discounted rent in addition to an incentive package.

Tenants are king in this economic environment and shouldn’t be afraid to ask for their own terms. Do you have a year left on your existing lease? Ask the landlord to buy it out, i.e., continue making your payments after you’ve moved. Many landlords are agreeing to do this for up to one-year.

If you are able to get an aggressive deal, don’t be afraid to lock it in for the long haul. You’re goal should be able to get a 5-year lease or longer.  A significantly reduced rental rate will be even more valuable in the next three to five years when rental rates get back to, and exceed, the values of the recent past.

Sublease space can also make sense, especially when it is plug and play, with furniture and network cabling in place.

Even though there is an abundance of below market deals available, many tenants are reluctant to commit for a long-term and instead, prefer to remain flexible. For these tenants, flexibility means the ability to be nimble – they are renewing in their existing location with a one- or two-year lease, trying to ride out the recession without taking a risk. The safest option is to stay put.