Chris Cooper, SVP for Jones Lang LaSalle Real Estate in Los Angeles, told GlobeSt.com, that owners are only making concessions for creditworthy tenants, and type of concessions varies according to submarket and owner's specific financial situation.
For example, in Downtown LA, where vacancy is at 18%--closer to 22% if counting in sublet space--owners may agree to as much as four to six months of free rent and TI dollars up to $45 to $50 per sf. In older buildings, some owners are now willing to foot the bill for upgrades to HVAC systems to land primo tenants, according to Cooper, who notes that until recently that expense would have been subtracted from a tenant's TI dollars. "Getting landlords to do that as part of a base number, that's a really big concession."
On the Westside, where rent increases have flattened out but rates remain firm, owners are less generous with free rent, Cooper continues, but they may offer good TI packages and lower after-hour HVAC rates and parking fees, as well as other perks like free visitor parking validations.
Greg May, SVP for Transwestern Commercial Services, says the increase in sublet space in Orange County is causing owners there to aggressively chase large creditworthy tenants and offer potentially lower rates and more concessions then they would have six months ago.
Rob Hixson, first VP for CB Richard Ellis' San Diego office, tells GlobeSt.com that free rent, per se, is not in the offering in his market, but some owners are giving desirable tenants early occupancy agreements for signing long-term leases of five years or more. This, he notes, amounts to a little free rent from the tenant's point of view. Additionally, Hixon says that owners are more flexible in negotiating rental rates and are giving more TI allowance to tenants with good credit.
The Phoenix market softened slightly during the first quarter of 2001, according to Laurel Lewis, a director at Insignia ESG's Phoenix office, but not enough to cause owners to give away much more than they had before the slowdown. Noting that the area is experiencing an increase in sublet space due to a downturn in the chip manufacturing market, she says, "We're seeing more broker incentives--representing brokers splitting fees with tenants--and a little free rent is entering the market." Lewis notes, however, that tenants can expect to get more TI dollars in new building, about $25 per sf on average, rather than $5 to $10 per sf in an older building.
In negotiating concessions, Cooper suggests that tenants who are sensitive to an owner's specific financial situation will come out best. "Understand what the landlord wants out of the deal," he says noting that new building owners usually have more cash to spend for TI than existing building owners, who are often cash poor, but willing to make other concessions, like free rent and lower rental rates, parking fees and after-hour HVAC rates. "It's silly to waste time and beat on the table if the landlord doesn't have much cash," Cooper adds.
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