Blending and extending, which has come back into favor in the current leasing market, will remain a big trend for the foreseeable future, Riguardi said. It's one of many opportunities for tenants in these days of reduced rents and greater landlord concessions. The current climate also offers plenty of chances for upgrading the location and the space, and for using market leverage to enhance non-economic lease provisions.
At the same time, the financial stability of owners at both the entity and property levels will remain a focus for tenants. That being said, Riguardi pointed out that about 100 Manhattan office properties suffer from shaky financing, but there haven't been nearly as many foreclosures in 2009 as might have been predicted a year ago, due largely to reluctance on the part of lenders.
Although Lauren Picariello, JLL's Boston-based VP and director of research, noted that overbuilding was limited to a handful of markets compared to the downturn of the early 1990s, Riguardi observed, "It's always an issue of supply and demand, and clearly, supply outweighs demand" at the moment. Looking ahead to an eventual recovery, Riguardi predicted, "2010 will be the year we find a bottom," and JLL predicts that rents and occupancy nationwide will begin modest growth around the third quarter of 2011.
This gradual rebound will start to occur about 12 months after the economy begins to turn around, Picariello said. "The caboose is always the last car in the train to pull into the station, and the caboose is the US office market," she said.
Beyond these cyclical conditions, though, are longer-term questions about the nature of space occupancy as corporations focus more on both efficiency and mobility. "The Great Recession has given us all an opportunity to rethink real estate strategies," said Peter Miscovich, the New York-based managing director of JLL's strategic consulting group.
Among the results of this rethinking is a greater emphasis on employee mobility. In sectors such as financial services and the pharmaceutical industry, 30% to 50% of employees are experiencing some degree of mobility, Miscovich said.
However, Miscovich said that having employees simply do their jobs full-time from home to save on space requirements was not a solution he'd recommend. Instead, he said "it's a question of optimizing the use of technologies" such as cloud computing and on-demand office space.
Moreover, within the typical office environment, "the per-person space requirement is changing," Miscovich said. When Miscovich entered the industry in the 1980s, the office contained a ratio 80% individual space to 20% collaborative space. Today, that proportion has changed to 60% individual space, and Miscovich expects collaborative space to outweigh individual space within a few years.
He cited a number of leading practices for optimizing corporate real estate portfolios. Among them: rational and efficient utilization of all owned and leased real estate, strategic occupancy plans around asset types, robust data to support decision-making for consolidation and disposition of real estate, and a firm's executive management defining and endorsing the organization's long-term occupancy cost reduction goals.
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Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
