Lease Restructuring in
Today's Market
A Valuable Tool for
Tenants and Brokers
By Howard Greenberg, SIOR
Rent is a function of the market. This simple, succinct summary
of our business, which I learned more than 20 years ago in a
Continuing Education class, distills the complexities of our business down to the basics: supply and demand.
Since the recession, the supply of office space has, for the most
part, remained stable with little or no new construction. Tenant
demand, however, has been reduced significantly. Companies have
gone out of business, reduced headcount, and encouraged telecom-muting. Many large companies no longer reserve dedicated space
for employees that spend less than 100 percent of their working
time in their offices. Trends since 2008 show that large, publicly
traded companies generally reduced their space when they renewed
their leases. All in all, deal velocity has plummeted in nearly
every market.
If Landlords’ agents or in-house leasing departments are keeping busy with functions other than marketing and canvassing, it is
generally with internal deals: renewals, expansions, downsizings
and lease restructurings of existing tenants in their own portfolio.
This small amount of new business has been overwhelmingly on
the small-tenant side.
All tenants that face lease expirations are going out to shop the
market, and are negotiating very hard on any new deals or renewals.
It has not been a fun time to be a landlord. The rent delta between
Class A buildings and Class B buildings always shrinks in a soft
market, as A buildings lower their rents to compete more effectively
with their less-glamorous neighbors for the few deals that are out
there. Savvy tenants generally take the “flight to quality” in soft
markets, as the costs of upgrading to newer and better quality facili-
ties is much less than in normal market conditions.
