August 5, 2019
By Patrick J. Sentner, SIOR 2019 Global Vice President
Q: How is the office market changing across the country? What are you seeing in secondary/tertiary markets? How is the shared office model changing the way CRE pros conduct business? Is this creating opportunities or problems or both?
A: The U.S. office market continues to evolve. In major and secondary markets, landlords have been investing in their buildings like never before, due to increased tenant demand for high quality space. Tenants expect meeting rooms in a variety of sizes that contain amenities including snacks, beverages and craft beers. In addition, on-site gyms need to not only have new equipment but also provide classes including yoga, barre, and sometimes even cross fit. Lastly, building lobbies need to include high-end coffee and multiple quality food offerings.
While providing a multitude of building amenities, landlords are also offering large tenant improvement allowances. The allowances, which can range from $45-per-square-foot to $100+-per-square-foot, are required because tenants are designing their premises in innovative ways to appeal to the desires of the Millennial and Gen Z workforces. Tenant build-outs now include more common areas than ever before. In traditional office space, tenants used to have two to three seats per employee (offices, conference rooms, kitchens, etc.). That number is now in the four to five seat per employee range because of the many different common areas. In exchange for these larger tenant improvement allowances, tenants are providing landlords with longer lease terms. The typical five-year lease is now seven years, the typical seven-year lease is 10 years, and the typical 10-year lease is now 12-15 years.
Landlords in primary markets have been dealing with WeWork type companies for many years, but these groups are now entering secondary and even tertiary markets. These companies have been able to provide small tenants access to Class A buildings, without the landlords having to build out small (think sub 2,500-square-foot) spaces.
Q: What do you think CRE pros should be on the lookout for in 2020?
A: The commercial real estate industry has continued to thrive in 2019. The office, industrial, investment and even retail markets have all remained strong. Brokers in each of these categories have been provided with multiple opportunities for success, whether they are representing landlords or tenants. However, there is a major unknown for 2020, and that is the upcoming Presidential election. All indications are that this will be a contentious election which could result in a reduction in consumer confidence, creating a great deal of economic uncertainty.
One of the best ways to stay ahead of this potential economic uncertainty is to be in direct and regular contact with industry experts. The experts include brokers, economists and lenders in markets throughout the U.S. There is no better way to do this than to attend SIOR conferences on international, national, regional and local levels. In 2020 alone SIOR will have large conferences in Indian Wells, CA, Dublin, Ireland and Boston, MA. These conferences will give brokers across the globe access up-to-date information that is not typically available to the general population. These conferences will provide networking opportunities with fellow brokers, high-end quality speakers, and strong education options.
Q: What advantage does being an SIOR have for CRE pros in an ever-changing market?
A: Nothing is more vital than networking with fellow brokers. Membership in organizations like SIOR provide access and connections that are essential to success. If, for example, you are a broker in secondary cities like Pittsburgh or Kansas City, you most certainly could learn what CRE trends will be coming to your markets by speaking with brokers in primary markets like New York, Chicago, Dallas or Los Angeles. By hearing first-hand what is new in primary markets, brokers can bring this information back to their clients (landlord and tenants) to have an edge on the competition and provide better service for clients. This provides SIOR brokers a major differentiator when competing for assignments.
For comments, questions or concerns, please contact Dennis Kaiser