February 18th, 2015
Much has been made of the re-urbanization of America – people moving back into the nation’s downtowns. But quietly, over several decades and not just a few years, America’s suburbs have seen more of a “permanent, longer-term shift in population growth patterns.” The same is true in Greater Boston. And as increasing residential real estate costs downtown push many young professionals outside the city, companies are well positioned to give an increasingly young workforce the urban live-work-play lifestyles they’re looking for – except in the suburbs.
Case-in-point: Last month, Normandy Real Estate Partners purchased a 27-acre parcel on Route 128 in Needham, adjacent to an office park into which TripAdvisor is scheduled to relocate this summer. Normandy is redeveloping both parcels into a 41-acre live-work-play “’SuperPark,’” with ample parking, well-lit offices, and multiple amenities.” The Needham complex will join similar projects in Marlborough (the former HP campus, now occupied by Quest Diagnostics and soon GE Healthcare, which will take 210,000 square feet); Burlington (Nordblom Cos.’ Northwest Park); and Westwood (Westwood Station). Each of these complexes will feature housing and office space, as well as retail space and amenities like hotels, restaurants and shops.
Is a live-work-play scenario in the ’burbs – in these or another development –
a good fit for your company? Consider a few of the advantages for commercial tenants:
Your Employees Find Convenience
Yes, many young workers will continue to want to live the urban lifestyle. Living in the city and driving out to work in the suburbs every day, however, simply doesn’t work for many. Many of these new suburban “super parks” offer free surface parking or significantly discounted pricing (compared to urban rates), less traffic congestion and access to an improved amenity base such as hotels, restaurants and retail shopping. A live-work-play option in the suburbs gives employees a slice of the city without all the headache.
You Save Money
Although more expensive than existing office space, prices for space in one of these new live-work-play complexes are still significantly cheaper than what you’d pay (or are paying) in downtown Boston or Cambridge. What’s more, without the requirement that developers use union construction workers, you’ll also save about 30 to 40 percent on construction pricing for tenant fit outs (from downtown costs).
For sure, the urban market will remain red-hot. But so will suburban markets, giving tenants an economical alternative to setting up downtown. Dying are the days of the sleepy, monolithic suburban office park; the live-work-play phenomenon is making going to work a whole lot more interesting.
If you have questions about whether such a space might be right for you – or anything else about your real estate strategy – give Cresa a call. Representing only tenants, we’ll sit down with you to hammer out a plan for your office space that works for you and your employees, then help you negotiate the best possible lease.
David has more than 18 years of real estate experience providing exclusive tenant representation services to a variety of clients including high tech and professional firms with individual locations to publicly traded companies throughout the continental United States. He has significant experience in the Mass Pike/ Metrowest and I-495 Central Markets in both office and industrial leasing.
January 30th, 2015
You read that correctly. Your company may be sitting pretty in a great leased office, but you should set yourself up now to expand, downsize, or renegotiate your lease. Here’s why:
The Process Takes a While
Your lease may not be up for another 18 months, but the commercial real estate process can take that long on the tenant’s side for both small and large companies. For one, more time equals more leverage. Stay up on the terms of your lease and engage your landlord well in advance of when it expires. Landlords, naturally, are in business to make money; the less time they know you have to shop the market and pursue alternative leasing arrangements, the less willing they’ll be to negotiate favorably for you, the tenant. A broker – specifically one that represents only tenants – can help you craft a real estate plan that fits your business plan.
Your Space Needs Have Changed
Don’t wait until you’ve exceeded the comfortable capacity of your current space. “Right sizing” your space means projecting months ahead to the hiring or downsizing you know is coming down the pike. If you know you’re planning to hire 20 people in the next 18 months, for instance, now is the time to formulate a real estate plan that fits your company changes. We can help: our project management team works with tenants to determine space requirements for changing business needs. And working just with tenants, we’ll never pressure you to upsize if you don’t need to.
The X Factor
Having a tenant-focused broker on hand is also important because market circumstances beyond any tenant’s control can pop up without warning, impacting your lease. Your landlord is looking to sell your building. The market has softened. In these and other unforeseen events, don’t get caught unaware.
The great news is that these macroeconomic events may present an opportunity to actually improve your leasing terms. For instance, a landlord selling a building may be open to giving tenants a more favorable lease to lower the vacancy rate in the building, therefore lowering their cap rate. And in a down market, when rents are declining, tenants can sometimes renegotiate their leases earlier, and for less money, with landlords who’d rather lock in long-term tenants than experience turnover. Again, a broker who’s an advocate for tenants – like Cresa – will be there with you the whole time, updating you on market developments that could affect your lease and helping you capitalize on them.
It’s never too early to think beyond your current lease. Don’t become a “captive tenant.” This is why Cresa exists: to give tenants more of a voice. So give us a call – we can help.
As part of Cresa Boston’s suburban market team, Gabrielle provides transaction and account management services to tenants primarily in the Route 128 North marketplace.
January 8th, 2015
They’re coming from Waltham, Lexington, Kendall and Harvard squares — and from outside Massachusetts. No doubt the biggest commercial real estate trend of 2014 was the migration of businesses to downtown Boston — and not just the Innovation District.
Over the last 12 to 18 months, we’ve seen a glut of business tenants clamoring for a downtown zip code, driven by (but not limited to) factors like accommodating a younger, more urbanized workforce that generally prefers a shorter commute between home, work, and recreation; proximity to public transportation and Logan Airport; and technological changes that allow companies to occupy less office space.
If South Boston’s Innovation District was the epicenter of this trend in 2012 and 2013, Downtown Crossing was the hub of activity last year. In September, we saw growing tech firm Sonos defect from Kendall Square to Lafayette City Center, a renovated complex in an area remembered most recently as the crime-infested “Combat Zone.” As we pointed out in our mid-year report for Downtown Boston (look for our 2014 end-of-year report soon!), Downtown Crossing has really emerged as Boston’s new “Innovation District,” with large blocks of inventory meeting the needs of many technology and e-commerce companies.
Despite rents that have risen 30 percent in the last two years, increasingly limited inventory and increased commuting costs, we see no indications that the downtown migration will slow down in 2015. Rents may, however, reach its peak this year.
For one, expect to see downtown landlords increasing pricing on vacant space in response to the growth in demand. This may temper rent growth over the next few years, but not before developers in the Financial District, North Station, and, yes, the Seaport District continue to lease existing stock and capitalize on millions of square feet of additional development capacity.
In terms of capacity, North Station may follow up Downtown Crossing as the city’s next booming hub of innovation. Converse has gotten things started off with its imminent move from North Andover to Lovejoy Wharf, but it’s the large amount of untapped potential that holds the most promise for the future: nearly 2 million square feet of developable office space, compared with 180,000 square feet of space being currently leased or under construction.
Elsewhere in the city, look for Class B office spaces to continue to outpace newer, higher-priced Class A offerings. While a growing company like Sonos can occupy 170,000 square feet, the average downtown tenant needs just 10,000 square feet. Many of these tenants are in Class B buildings – smaller, often older, boutique spaces that offer more rustic charm than many of the sleek high-rises. Not only are these more economically feasible for startup or scaling-up companies, they’re more aligned with small companies’ preference for a cool, boutique space.
Finally, it’s not just the technology industry coming to Boston – it’s all industries. Converse’s move to North Station is a prime example. Wolverine / Stride-Rite nearly relocated to the Financial District. Living and working in Boston, which has traditionally been more of an overgrown village than a big city, we’re connected to each other in a special way.
Brandon’s advisory practice focuses on corporate and institutional client support within Downtown Boston. He has advised clients with site selection, strategic planning, acquisition, dispositions and many lease negotiations.
Tags: Boston, Boston Q3 Market Report, commercial real estate, Cresa, Downtown Boston, Innovation, Migration, Real Estate, Tenant, tenant guide
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December 9th, 2014
In our 2014 Midyear Report, we discussed the influx of venture-backed companies into Boston’s CBD (Central Business District), particularly Downtown Crossing, bucking the perception that the Innovation District is the destination of choice for this type of tenant. A closer look into venture capital investment activity across these two submarkets reveals an interesting dynamic. It appears as though more companies start up in the Financial District and then grow across the Fort Point Channel.
Matt’s advisory practice is focused on representing corporate and institutional clients in the Greater Boston area. His experience includes tenant advocacy for space users across a diverse array of industries.
Tags: Blog, CBD, commercial real estate, CRE, Cresa, Cresa Boston, Downtown Boston, Fort Point, Innovation, Investments, Matt Harvey, RE, VC
Posted in Lease Administration, Market Reports, Research, Tenant Guides, Transaction Management, Uncategorized, Workplace & Location Planning | No Comments »
August 27th, 2014
Whether you are a mature company or a start up, real estate costs are sure to be one of the largest expenditures when it comes to your balance sheet. Often the focus will fall on the coupon rent that you are paying and some of the concessions you are able to negotiate from the landlord such as free rent and tenant improvement dollars. While these are very important aspects of the lease, one often overlooked component is tenants pay more for real estate than they should, due to leasing more space than they need.
Right sizing of space should be a company’s focus to ensure they are not spending too much on real estate. Perhaps you really like the building’s location and the top floor space that has views that could help attract top talent. While these factors are not to be overlooked, is it worth taking 15% more space in order to get a space you truly desire? When you begin the process of either an expansion, renewal or contraction, it is extremely important to take a look at your company’s business plan and project forward (as best you can) expected head counts for the future. For example, how many employees need offices? Are you projecting growth over the next eight quarters? Are you considering corporate standards for your cubes and offices? These are some of the many questions that can help focus on the amount of space a company really needs.
With accurate projections in place, your real estate advisor should help you find space options that could potentially serve as your next home. As you develop options, request floor plans and CAD drawings that will help you see how you could lay out in the space. What you may find through this process is that you may need less space than you had originally thought, and even sometimes, possibly a bit more space. Running a test fit on the potential options will help clarify you space needs, show you how you can most effectively lay out in a space and help you avoid taking too much space.
Right sizing your space should remain a priority through your due diligence phase of your real estate planning. There are a number of ways your advisor can help build in flexibility to your lease should the future be a little less clear than you would like. Clauses such as expansion rights, termination rights, rights on contiguous space, etc. can allow your firm to move into a space without the worry that a long term commitment can come back to haunt you. A conversation with your advisor will help them navigate and negotiate on your behalf to ensure that your business and capital are preserved.
Below is a sample test fit, click to view at full size.
As part of Cresa Boston’s suburban market team, Andrew provides transaction and account management services to tenants primarily in the Route 128 West marketplace. His responsibilities include developing new business, strategic planning, analyzing real estate markets, and negotiating lease transactions. Prior to joining Cresa Boston, Andrew worked as a Financial Advisor at Merril Lynch, where he customized financial plans and asset allocation strategies to help clients meet goals.
August 19th, 2014
Most people agree that renewing a lease and maintaining “business as usual” is the least disruptive course of action a business can take. What they don’t typically realize is how much leverage they have with their existing landlord.
Tenants often don’t realize that if they were to relocate to a different location, their current landlord’s world would change dramatically. Suddenly, the landlord’s certainty of cash flow is disrupted. Landlords face many questions, including how long will it take to secure a new tenant? How much time and capital will it take to build out the space? Construction alone could take two – six months, and the landlord will not be receiving any income during this period. An additional concern is whether the new tenant will request free rent or a moving allowance to bridge the relocation costs. All of these considerations mean a lower return for a substantial period of time.
Most tenants don’t take advantage of these opportunities in order to get the most favorable economic terms. Tenants compare renewing versus relocating and all the out-of-pocket costs and disruption that comes with it. What they should also analyze is the landlord’s side of the deal. Landlords compare the potential renewal terms against the rent they may generate minus the downtime, tenant improvement dollars, and other concessions the new tenant will demand.
One of the most important factors in securing a favorable economic deal is starting the process early. Often, tenants underestimate the time it actually takes to go through the real estate process correctly. Depending on the size of the company, we recommend starting the process 9-18 months prior to the lease expiration date. This gives the tenant the ability to become educated on the alternatives in the marketplace, as well as letting the landlord know that moving is a viable option. Landlords know that permitting, design and construction is typically a four to eight month process, so the tenant needs to have that much time to even the playing field in the negotiations. Controlling the timeline is critical to maintaining options and leveraging your tenancy for all it is worth.
Office leases are usually negotiated every 3 to 10 years, so it is critical to take full advantage when you have the opportunity. Starting the process early and understanding your landlord’s view of the world will only help you negotiate the most favorable terms possible.
As a Principal of Cresa Boston, Dan is involved in the identification phase, financial analysis, business term structuring and lease negotiations on behalf of tenants primarily in the Cambridge and Suburban marketplace. Since joining Cresa Boston in 1999, Dan has successfully helped numerous companies such as ZipCar, Simon Kucher & Partners, inVentiv Health, vmWare, KAF Financial Group, EMC and Oracle. Mr. Sullivan’s extensive market knowledge and experience serve his client’s best interests to help ensure their real estate portfolio is viewed as an asset, and to allow his clients to remain competitive in their respective markets. Prior to becoming Principal in 2007, Dan was the recipient of the Cresa Boston 2006 Consultant of the Year Award.
July 21st, 2014
A few years ago, we met with a local entrepreneur who founded one of the first co-working concepts in downtown Boston. It was a wide open space with a few small conference rooms and dozens of desks that housed a variety of smaller tenants from tech startups to non-profits. We sat in one of the conference rooms and he looked us right in the eye and told us that co-working was the wave of the future. We remember walking out of that meeting filled with skepticism.
Fast forward to today. The primary focus of our downtown Boston mid-year report is the shifting tenant composition in the Financial District and Downtown Crossing. What was once a market driven by banking, financial services and insurance is now tied closer to innovation. As mentioned in our mid-year report, WeWork and Cambridge Innovation Center leased a combined 195,000 SF in the first half of 2014. While these are two of the larger/more recognizable concepts in the area, more and more co-working concepts continue to pop up throughout the city even extending into the Back Bay. Some of these smaller concepts include: Ideaspace, Coalition, Officio, SnapSuites, Workbar, Black House, etc. Prospective tenants can now utilize online networks such as Pivot Desk and Outerspaces. Both of which are fantastic resources for tenants interested in subleasing space and those seeking flexible work environments.
So what’s driving the demand? Why are these concepts filling up at such high rates? We dug into these questions and, as the chart below indicates, noticed a direct correlation between a significant uptick in the volume of “seed” funding rounds and the increase in total square footage/number of co-working concepts throughout the city. While early-stage companies are just one component of these environments, it further substantiates the evolving economic climate and changing makeup of downtown Boston.
For smaller tenants, sharing space and renting desks on a short-term basis is cost effective, promotes collaboration and most importantly, maximizes flexibility. Still, one has to wonder whether or not the co-working concept is sustainable. Over the past three years, there has been a 145% increase in co-working square footage. That said, as long as innovation continues to drive the local office market, these environments will continue to thrive.
For more information, please contact us at 617-758-6000.
Jon Vacca Vice President
firstname.lastname@example.org Derek Losi Vice President
June 11th, 2014
More than 250 years ago, not too far from where I currently sit, colonists rebelled against a King for taxing them, even though they weren’t receiving any real benefit or representation in return. In commercial real estate, your landlord (the King) builds fees and expenses (taxes) into your rent, which you will pay over the course of the lease. If and when you extend your lease, the appropriate fees are paid out by the landlord….whether you have representation or not.
In spite of this, some tenants still consider negotiating directly with their landlord. They say: “I know the Landlord and they have always been nice to me”; or “the Landlord told me if I do not use a real estate broker I can get a lower rent since they won’t have to pay a commission.”; and my personal favorite “we’re friends”.
On the surface, it appears to make sense. But when you peel back the many layers of a real estate transaction, whether you are relocating or renewing your lease, the complex dynamics and variables (both financial and otherwise) are the same. Without objective representation, you are at risk of leaving up to 25% – 35% of the dollar savings on the table.
The question you have to ask yourself as a tenant is this: if I were a defendant in a trial, would I represent myself in court? So why represent yourself in a real estate transaction when there are potentially hundreds of thousands of dollars on the line? A Landlords primary goal is to maximize the value of its building. And the single best way of doing that is achieving higher rents and limiting their capital outlay. For example, in a 100,000 square foot building, every $1 per square foot in additional rent can increase the value of the building by as much as $1,000,000. A tenant’s goal, on the other hand, is typically to pay the lowest rent possible. Two very contradictory objectives.
The reality is that landlords typically will not present the best deal to an existing tenant until they feel there is a possibility of losing them. By engaging a broker to act on your behalf, the landlord understands that there is a real possibility that you will move and they will sharpen their pencil accordingly.
And for all the attention that is paid to the economic terms of a lease, there are many, potentially more important, non-economic terms that should be negotiated as well. At the very least, base years for tax and operating costs should be reset to minimize the tenant’s exposure on these annual cost increases. As an established tenant in the building, with (likely) minimal requirements for capital outlay, a lease renewal is a great opportunity to reduce security deposit held by the landlord – their risk has drastically decreased since the start of your tenancy. For some tenants, flexibility is critical and some landlords are more willing than others to provide termination options throughout the lease. Finally, while more common in new leases, it is entirely possible to negotiate rent abatement in a lease renewal. All of these “non-economic” terms have value and they all may be missed opportunities by not running a competitive process.
A Tenant broker is paid the same way, whether a new lease or a renewal. While our fiduciary responsibility is to our tenant client, leasing fees are typically paid by the landlord. As noted earlier, these fees are built into a landlord’s pro forma as a capital expenditure and they are built into their tenant’s rent. Therefore, tenants ultimately pay brokerage fees over the course of their lease so they might as well get the value for it by engaging a tenant broker. If a tenant is unrepresented, the landlord often times pays that fee to their own broker or even to themselves. Many landlords tell their tenants that it will cost them more if they hire a broker.
The reality is it will cost you more if you don’t…
April 7th, 2014
After a cold and seemingly never-ending winter, spring is finally here. As a tenant, that means receiving your annual operating expense reconciliation statement from your landlord. A year earlier, your landlord started to bill you for your share of the estimated 2013 projected costs (i.e., cleaning, security, maintenance, etc.), and the reconciliation statement that you will shortly receive is meant to reflect any adjustments (usually an increase) in those projections. Regardless of your lease structure (e.g., net, gross, etc.) it is important to review these statements and, based upon the language in your lease, determine if the expenses being billed to you are accurate.
There are many ways in which landlords attempt to pass additional expenses along to tenants, but one of their more common practices is when they “grow” the building in which your company leases space. Landlords rarely increase the size of the building due to actual construction; rather they simply increase the rentable square feet in the building because this is the easiest way to create value for them. Unfortunately, this comes at the expense of the tenants in the building.
For example, in 2008, P. Stevens Associates of Boston performed an analysis of 51 buildings in the Boston/Cambridge marketplace (“Why Owners Grow Office Buildings and How Tenants Pay”). Between 1997 and 2007, the weighted average was 5% growth, with one building growing by over 30% and many others over 20%.
A change in property management can also be a red flag for tenants. While the management fee for a property is typically negotiated as part of the lease, it is not uncommon for landlords to pass along additional fees or a fee at a higher rate than had been agreed to. Without a proper review of reconciliation statements, this increase would go unnoticed.
The Need for Audits
Since so much can change on the ownership side during the life of a lease, an important first step in minimizing your future exposure is to conduct a base-year audit of the expenses incurred by the landlord during the first lease year. This will help establish an official baseline against which subsequent years can be compared. Plus, having a baseline will make it easier to determine if future audits are necessary. If 2013 was the first lease year for your company, the only opportunity that you will have to perform a base year audit is right now!
In short, it is very common for tenants to assume that what the landlord has billed them for operating expenses and taxes is correct. However, more often than not, this proves to be incorrect. The impact of erroneous billings by landlords can easily equal six figures or more over a lease term, so prudence suggests that tenants have a professional review their leases and expense reconciliations to determine if an audit is advisable. Cresa can provide you with this expertise at no cost, so tenants have absolutely nothing to lose.
For more information, please contact us at 617-758-6000.
September 5th, 2013
By Mitch Jacoby
Having completed more than 25,000 seats of contact center projects in North America, Cresa’s Location Planning group has developed a keen understanding of vital factors driving successful contact center location strategy. Contact centers (also known as “Call Centers”) can be a Business Process Outsourcer (BPO) which contracts agents to end-users for specific functions such as customer service, technical support, account billing, reservations, and the like. In-house contact centers or, “captives” operate as internal agents for banks, healthcare companies, or wireless phone providers. Here are several key factors driving contact center location strategy -
1. Labor cost
This is the most significant driver for contact centers. Think of the value of $1.00. If you save $1.00/SF on a 50,000 SF lease, you save $500,000 over 10 years. The impact of $1.00/hour in labor savings for 500 contact center agents is $10M over the same period, or 20 times more!
This critical indicator measures the number of people employed within a particular industry or business sector as a percentage of all employed persons. For basic contact center projects, 2% saturation or greater is indicative of escalating wages and high turnover. Saturation below 2% is representative of cost effective labor, lower turnover and greater employee loyalty.
Tied to saturation, companies experience increased employee turnover at saturation greater than 2%, while improving employee retention below 2%. We have seen contact centers experience 100% annual turnover or more, essentially replacing the entire employee population every year!
It is vital to understand who the direct and indirect competitors are. Your company may be the proverbial “800 pound gorilla”, a well-recognized company with a strong brand, and consequently, you attract the greatest number and best employees. Conversely, you may be the low-end of the competitor scale and become a “feeder” for other area employers.
5. Labor availability
Companies must be sure there is adequate population from which to recruit and hire. This is true for both the initial location decision and beyond, since existing employees will attrition and new ones must be hired to replace them. It is also important to regularly monitor the labor pool as new employers enter/exit the market.
6. Real estate availability
Except in cases of “remote” or “at home” agent programs, a building is necessary. Contact centers frequently opt for shopping center, flex and single-story office space with typical occupancy metrics of 100 SF/person or less. In the example above, a 500-person contact center would typically require 50,000 SF. Moreover, expanded cooling and power capacity is also required in these buildings.
The greater headcount as compared to typical office space requires more intensive parking, typically accommodating 6 to 10 parking spaces per 1,000 SF of leased space. This is also dependent on average daily occupancy and shift staffing.
Incentives are often thought to be the “icing on the cake”. Once optimal labor pools are identified and labor savings are calculated, statutory and discretionary incentives should be negotiated for multiple states/communities to maximize economic benefits. As well, it is crucial to quantify the benefits for which a company actually qualifies, as well as determining whether incentives are cash-based and fungible, or tax credits from which a company my never benefit.
9. Time Zone
Companies often spread their work by time zone to save money and avoid paying overtime. Also, in order to meet customer demand, companies will place contact centers in varied time zones.
To support the numerous languages their customers speak, contact centers prefer to hire native speakers of Spanish, French, German, or Portuguese for example. In North America, a wage premium is frequently paid for multi-lingual workers who speak, read, and write. Further analysis of labor availability and market wages is required for multi-lingual workers.
When undertaking a contact center project, it is most vital to focus on labor cost, saturation, and competition, as this delivers the greatest value to our clients.