Blog Bonus Submission: Omar Gutierrez

Commercial Real Estate Feeling the Economic Strain
By Omar Gutierrez

The big real estate news of the year is around the declining home market. But has anyone paid attention to all of the office buildings around town with “Office Space Available.”

The commercial real estate market is struggling just as much as the residential market. Many businesses are unwilling to make long term lease commitments for their office space because they are unsure of their future. Those companies can’t really tell how much growth to expect in the next coming quarters, so committing to a standard minimum lease of 5 years may not be a good idea. They may not need all the say they leased, or it may be too small of a space. Real estate brokers and landlords are being forced to adapt to this changing demands of their clients.

The result is many brokers are allowing shorter term leases. In the case of a digital marketing firm Razor-360, they recently rented offices in Addison, TX for only 16 months. Typically, brokers and landlords turned down these types of leases. But in today’s economy, then need to do anything they can to retain tenants and generate income. An empty office space does not generate any revenue, so the tenants are beginning to have more power in the marketplace.

But companies who are confident in their futures are still willing to make those long-term leases. Paul Whitman, who heads Jones Lang LaSalle’s Dallas office said, “I’m working on a transaction right now where we are going to do a 15-year term. They are a company that has a solid feeling about who they are, what they’re going to do and how much space they need.”

Overall, the leasing market is down more than half-million square feet so far this year in the Dallas area. Everyone is trying to do what they can to survive this current economic climate. For those business tenants willing to do a longer term, landlords are wheeling and dealing with rental rates to ensure they have their continued business. But even brokers and landlords are advising tenants to sign shorter term leases if needed. Whitman said, “Would the landlord rather have a longer term? Of course. But they would rather have one year than zero.”

Works Cited

Brown, Steve. “Uncertain about future, companies signing shorter leases.” Dallas Morning News. 26 June 2009. http://www.dallasnews.com/sharedcontent/dws/bus/industries/commrealestate/stories/062609dnbusshorterterms.3bb000e.html