April 27th, 2015
If you caught even a few games of March Madness, you’ll understand that in a close contest, the winning team is usually the one that has managed the clock to their advantage down the stretch. Knowing that it can quickly lose a lead late in the game, the leading team will slow down the pace of play, working to capitalize on each possession. Conversely, a trailing team will attempt to keep as many seconds on the clock as possible between shots, rolling the ball inbounds to delay the start of the clock and attacking the rim quickly each possession. If it can put six or eight points on the board quickly – with a three-pointer or two thrown in there, perhaps – they’re right back in it.
Clock management is just as important in commercial real estate: for tenants looking to renew their lease or relocate, time management equals leverage in lease negotiations. Knowing when to engage the marketplace is essential in obtaining favorable lease terms.
Start the process too many months ahead of your lease expiration date, and the marketplace will not take your requirement serious. Start the process too close to your lease expiration date, and your landlord will know you do not have time to move.
The latter scenario essentially removes your leverage in negotiations, resulting in decreased landlord concessions. Deleveraging yourself can also result in an above-market rent structure, failure to receive updated real estate tax and operating base years, and minimal lease flexibility — meaning the ability to terminate or extend your lease or flexibility in the contract premises.
As a general rule, the size of the tenant will dictate how far out from the existing lease expiration date the tenant should engage the existing landlord and competing landlords. For example:
- Small tenants occupying less than 10,000 square feet should plan on starting process 6-10 months prior to their lease ending
- Medium-sized tenants occupying more than 10,000 square feet but less then 50,000 square feet should plan on starting process 10-18 months prior to their lease expiration date
- Larger tenants (more than 50,000 square feet) should plan to start the renegotiation process at least 18 months prior to expiration
Whether the tenant’s objective is to renew or relocate, in order to obtain the most favorable lease terms they must be willing to walk away from their existing landlord (and communicate that during negotiations). Using time effectively will make the existing landlord compete for your tenancy, ultimately leading to a more favorable lease structure for the tenant.
The fine print: Each market and tenant is different, and certain circumstances may force a tenant to engage the market place sooner rather than later. That’s why these are general rules. That’s where a tenant-focused broker like Cresa comes in handy, helping tenants determine their company’s real estate needs, interpreting their specific lease scenario, and helping them through the negotiations. Like a good coach, we help tenants work the clock and get the best deal possible – every time.
April 8th, 2015
Like lunar positions and Boston sports championships, commercial real estate is cyclical. After bottoming out in 2009, the greater Boston commercial market has been trending upward ever since, with demand increasing steadily since 2010. (yet with little new supply being added) As a result, in just the last two years, most submarkets have seen asking rents increase significantly — some by more than 40 percent. Many landlords will continue to raise asking rents throughout 2015 as demand remains strong and most new supply is just hitting (or about to hit) the market. Looking further down the road, however, the last three commercial real estate cycles have lasted from six to nine years, meaning we could see rents continue to rise for years to come.
If you’re currently weighing a long- versus a short-term lease, this should give you pause. No broker can tell you with 100 percent certainty what rents will be in three years, but by committing to a long-term lease of 7 to 10 years today, you may be locking in at the pinnacle of this real estate cycle. Given our current market, it may make sense to consider a two- to three-year lease if it corresponds with your business plans. (Landlords will likely extract a 10-15 percent rent premium for this flexibility, but this may come back to you in rent savings over a 10-year period)
It may still make sense to consider a long-term lease, however, if you:
• want or need to have new construction
• need to make a significant capital investment in infrastructure
• don’t want to spend the capital on funding construction improvements that a landlord won’t fully fund on a shorter term deal
• are in an extremely competitive submarket with little or no large blocks of contiguous space. In this case, competition for space may force you to consider a long-term lease.
If you do go the long-term route, be sure you negotiate as much flexibility into the lease as possible — rights to terminate early, option to give back space, option to sublease, etc. This underscores the importance of hiring a trusted real estate broker to form a plan based on your business needs and advocate for you with prospective landlords. Because especially when the market is at a hot point in the cycle, you don’t want to get stuck in a money pit that gets deeper with each passing year.
March 26th, 2015
If you haven’t been immediately south of Boston recently, the city of Quincy is poised to undergo something of a renaissance. Led by Mayor Thomas Koch, the city is pouring millions of dollars into a revitalization of the downtown area, with attracting commercial businesses and their employees as a huge part of their long term plan. After the previous $1.6 billion redevelopment plan on 55 acres downtown fell apart last year, a new developer stepped in last November with a plan for 160 units of new housing and 12,000 square feet of retail space. Despite the downsized immediate plans, the business climate in Quincy is optimistic and ripe for your company.
1. Convenient to Boston Quincy is a city next to THE city. Quincy’s four MBTA Red Line stops cover the entire length of the city’s borders. Split by I-93, your employees who live in Boston would enjoy a short (about five miles) and breezy reverse commute, and have ample places to park for cheap or free once they’re there.
2. Affordability and amenities It’s no secret that the cost to headquarter a business in Boston and Cambridge is out of reach for many. Many companies simply elect not to put capital towards the high rents that landlords in downtown Boston and in Kendall Square now demand. South Shore commercial property owners know this and can offer average rents approximately half those in Boston and sweeten the deal with modern renovations and building amenities like in-building cafeterias, gyms and mini-marts.
3. Business-friendliness As I’ve already mentioned, Quincy’s city government is aggressively building an environment that is conducive to new businesses through redevelopment, but also through the city’s “streamlined permitting process, open access to government agencies, and in special cases, property tax incentives that spur investment and job creation.” (download the Quincy Chamber of Commerce’s Business Guide) This should come as no surprise, however: both Howard Johnson’s and Dunkin’ Donuts got their start in the City of Presidents.
4. The size of office space inventory Consider the total of approximately three million rentable square feet of office space located within a 10 minute walk of each of the four MBTA Red Line stops in Quincy. Of that square footage, roughly 750,000 square feet is currently available for lease.
5. Live-work-play Plenty of residential opportunities exist in Quincy as well. The city is finally now developing into a live, work, play area that is popular with the younger workforce. There are numerous apartment communities to choose from, three golf courses, marinas, parks and various retail amenities. With regards to new development, the plans for Quincy Center’s West of Chestnut redevelopment were unveiled in November 2014. These plans include 160 new housing units and 12,000 square feet of new retail space. As Boston and Cambridge continues to be a hot (and expensive) place for the best companies in the world to have their offices, we’re going to see commercial real estate in communities like Quincy heat up as well. Give me a call if I can show or tell you more about Quincy’s potential to house your company!
March 26th, 2015
It’s no secret Boston is experiencing an historic building boom that will, according to the Boston Globe, alter the skyline for a third time in the modern history of the city. Periods of heavy building have occurred before, but none rival the volume of the boom we’re in now, reports have shown. It is, in many obvious ways, a great time to be a business operating in the Hub, as we seldom see the quality of commercial space we’re seeing now.
But having worked in project management and the design and construction of commercial office space with Cresa for many years, I’ve observed a significant downside to the boom that I predict will only worsen. We’re on the cusp of a major construction labor shortage – a high volume of work with not enough workers – that will disproportionately affect the union-heavy downtown market. (this is being projected for Chicago as well) For instance, as many of these large buildings come online, they’re going to need manpower to install mechanical, plumbing, electrical and other internal systems. Large contractors will be absorbing much of the labor pool, increasing the cost of tenant fit-out work and adversely affecting project schedules.
In just the last 10 months or so, I’ve begun to see this playing out in the project budgeting I do for my clients. If I get a budget from a contractor for construction on an upcoming tenant fit-out project and the work is not scheduled to start for six or seven months, it’s not unusual of late to see my previous budget increase by as much as 10 percent.
Busy contractors are also beginning to increase their schedule durations as the sub-contractor market tightens.
As a tenant, here’s what this means for you:
1. It’s more important than ever to hire project management assistance (like me) – someone who knows the market, the contractors and the landlords, and who will lock you into the most budget-friendly project available.
2. Start early. Labor shortages often mean longer project schedules. The earlier you involve a broker and project manager in the process, the higher the likelihood you’ll remain on-time and on-budget.
Principal, Project Management
Barry Dubé, an award-winning Cresa principal who heads local project management services in the Boston office, has more than 25 years of experience in the commercial real estate, including project management, development, relocation planning, design, construction, and facilities management. Cresa Boston’s Project Management team is one of the largest such groups in the Boston area, providing integrated, start-to-finish services with Cresa’s brokers for Transaction Management.
March 13th, 2015
To a cutting-edge business, it all looks pretty innovative, and practical, on paper: pay less rent each month for less office space, while giving your employees that cool, collaborative work environment everyone’s talking about.
And it’s more than a passing trend. In 2013, CoreNet Global, a global network of corporate real estate managers, surveyed companies and found that most office spaces gave workers an average of 150 square feet or less – down from 225 square feet per employee just three years earlier.
Functionally, it makes sense: we’re not tied to giant monitors, CPUs, or even clunky office phones anymore, and smaller spaces make economic sense to a lean startup launching out in an expensive Boston real estate market. But the trend also correlates with a changing workforce, led by Millennials, who’d rather share space in which they can work collaboratively with their co-workers than shut the door behind them in the spacious, sound-proof office.
Sounds perfect, right? Turns out there’s a serious downside to the small-is-beautiful trend sweeping the commercial real estate world, and it centers around bathrooms and parking spaces.
Local and state building codes call for a specific ratio of employees to parking ratios and bathrooms – ratios that are often explicitly stated in a tenants’ lease. Consider: A tenant leases 20,000 square feet in the Boston suburbs, where an office building has a parking ratio of 3.5 cars per 1,000 square feet of rentable area. The tenant parking allocation in the complex is 70 spaces, translating to 285 square feet per person. If the tenant increases the headcount to 89 people, lowering the per-person space to 225 square feet, the required parking ratio increases to 4.45 cars per 1,000 square feet.
This scenario is happening more and more, especially in more vehicle-dependent locations, and landlords aren’t happy. This can create strife between the landlord and a surrounding neighborhood worried that a complex’s workforce may spill out of the parking lot and onto nearby streets. Landlords also may start getting calls from other tenants whose employees can’t find parking spaces when one company takes more than their allotted number. Forced to either increase the parking quota for other tenants or cap the headcount for tenant companies, landlords are increasingly opting for the latter response.
This same scenario also applies to how many bathrooms are required, based on the maximum head count in the building, determined by building codes. Adding new bathrooms to accommodate increasing headcounts is simply too expensive for landlords, who are more likely to cap office occupancy than install new toilets.
This isn’t meant to dissuade you from adopting a lean and mean strategy for your office space needs, but to make sure you’re thinking about all sides of the issue – and making sure you’re not violating your lease without knowing it.
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
Posted in Market Reports, Research, Tenant Guides, Transaction Management, Uncategorized, Workplace & Location Planning | No Comments »
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.