WASHINGTON, DC—Securing encumbered space in a lease is a concession that still has legs for small-sized tenants, JLL's Creighton J. Armstrong tells GlobeSt.com. It is a fairly commonplace negotiating point for large tenants, but for a small tenant to secure it usually requires a certain amount of aggressiveness and a creative broker, he says.
Within those constraints, small tenants were able to get leases with encumbered space during the depth of the recession. Now, as the office leasing market slowly improves – emphasis on the "slowly" – it is debateable in some quarters whether landlords will continue to bend on this point. For forward-looking landlords, though, it is becoming clear that concessions can pay off, which is one reason why Armstrong thinks the market will continue to see them in lease negotiations.
That is the take home lesson behind Optimity Advisors LLC's recent renewal and expansion of its lease at 1600 K St., NW. The firm will now occupy more than 9,000 square feet on the second floor.
Armstrong and Kevin Brant represented the tenant in this transaction. The building is owned by JBG Cos. and it was represented by Carroll Cavanagh, also at JLL.
Optimity signed the original lease three years ago and it was at the point that JLL helped its secure terms for encumbered space. It originally started with 2,000 square feet then took another 3,000 square feet two years ago. Now it is becoming a full floor tenant at the 84,146-square-foot East End building, which underwent a substantial capital improvement program in 2012.
It helped that JBG understood Optimity's business plan and potential for growth at the time, Armstrong says. More to the point, he also thinks this deal could have been negotiated in the current environment. "Tenants are increasingly looking for flexibility and landlords that are willing to be creative will have the most success in leasing their space," he says.
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
