There is an interesting thing occurring in the commercial office lease market right now. As the market has become more competitive, fewer landlords have been willing to lease to start-up companies. On the surface, this may seem like a circumstance that is related to fewer vacancies. What tenant reps are finding is that there is more to these situations. Fewer vacancies means landlords have more choice in tenants, which is hitting the startup sector hard.
Although there is no one solution to this problem, it is clear that as long as commercial leasing remains so competitive, start-up companies need knowledgeable and experienced tenant reps to present them to landlords in the most positive light.
Competitive Leasing Markets Favor Landlords
With many commercial markets experiencing the lowest vacancy levels in quite some time, obtaining a commercial office lease has become a challenge for many businesses. Availability is down, which is a landlord’s dream that gives them the ability to pick and choose between tenants and charge higher lease amounts as a result. Unfortunately, the tenants being hit hardest are start-up companies, since many landlords find leasing to start-ups less desirable than leasing to established companies for a number of reasons.
Why Are Startups Being Singled Out?
When the market is weak, it is a tenant’s market. Landlords will usually do whatever is necessary to get tenants, then hope for the best. On the flip side, when the commercial leasing market is strong, landlords can determine leasing terms. Obtaining a commercial office becomes more challenging for all companies, especially for start-ups because of the risk these companies present. Between the increased possibility that a start-up will fold if the economy changes or vacate their spaces due to growth, many landlords simply prefer to avoid this and lease to a more stable, established firm.
Even when growing start-ups sublet their space and it is still income-generating for landlords, the hassles involved with continuously modifying and updating a lease is undesirable in a market where landlords do not have to deal with this at all.
Getting the Best Lease in A Competitive Market
In a market where the landlord has more control, tenants need to be more desirable than their competition. Companies must also be prepared to pay more and negotiate less to be considered for the more desirable locations. Considering how quickly space is leasing, tenants must also be aware of upcoming vacancies and be ready to jump on these opportunities quickly. Startups especially need to show stability and commitment. They must plan ahead in such a way that they present fewer risks to the landlord and can grow within their current space, at least to the end of the lease.
In these challenging leasing conditions, all businesses need the services of skilled tenant reps who have a wide network of contacts and know what is going on in their market before it happens. Experienced tenant reps, with good landlord relationships and the ability to help companies look like the best leasing candidate, are critical to successfully obtaining a commercial office lease.
The most important thing to understand is that as commercial real estate markets become more competitive, it will become more difficult for companies to find the right commercial office lease. This problem is compounded for start-up companies who can be viewed less favorably by landlords. To compete for a dwindling number of available spaces, companies must enlist the aid of skilled tenant reps who can act as their eyes and ears and negotiate favorably for them to find the most perfect lease with choosy landlords!
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