Samuel E. Horowitz is part of the Colliers International team that was recently named leasing agent for a newly upgraded office building in Fair Lawn.
By Samuel E. Horowitz
New Jersey’s commercial real estate and business communities are paying significant attention to the repositioning of New Jersey’s aging suburban office campuses as highly amenitized live/work/play environments. And equal focus is being placed on the hyper-customization of interior spaces — especially for headquarters operations — with open layouts and design elements that speak to an organization’s distinct corporate culture.
These are important and interesting industry trends — but they are far from universal.
In fact, what tenants want, and what landlords are willing to give, varies more today than ever before.
Landlords are again investing in their assets. The capex work we are seeing ranges from straight cosmetic updates at Class B properties to the creation of truly cutting-edge Class A campuses assembled by visionary landlords. In turn, tenants have an array of attractive options, and as the economy improves and businesses grow, office leasing volume is on the rise.
Yet the market rebound is, in some ways, also working to divide tenant and landlord expectations. As fundamentals improve, landlords are pushing asking rents up and requesting longer lease terms. They want to invest in their properties to make them appealing, but in order to do so, they need to ensure stability with longer-term tenants.
At the same time, space users with vivid memories of 2009 are wary of signing at higher rates for prolonged periods. Prior to the recession, well-financed companies would not have blinked at 10-year commitments; however, today they do not want to look past the next three years.
A broker’s role: bridging the divide
A broker’s first — and most important — steps in helping match tenants and landlords in today’s complex environment are developing a clear understanding of a client’s objectives and helping set their expectations accordingly. This applies to both tenant and landlord rep assignments.
Tenants may want more customization and amenities for a headquarters space. In this case, they need to be willing to pay more and commit for a longer time. Logically, landlords who are stocking their properties with amenities need to support their investment. And if a tenant wants a property owner to significantly alter a building to accommodate its particular brand or culture, that owner will need assurance that the occupant plans to stay.
On the other hand, for a regional office — which may be more prone to workforce reconfigurations due to economic expansions and contractions — a traditional building with a traditional fit-out might be a better option, as the landlord may be more willing to consider a lower rent and shorter term. Do employees at a satellite location operate under flexible scheduling? If they are sharing work stations and are only in a few days per week, then providing onsite amenities might not be a top priority (and therefore might not support the extra cost).
Ultimately, we use our experience and resources to match the tenant’s needs with the best possible solution. Tenants seeking short-term leases and flexibility will consider options very different from tenants seeking build-to-suit space in a highly amenitized campus. Making sure we have an upfront conversation about terms, availability and pricing is critical in establishing realistic expectations.
As a landlord representative, brokers can serve an important role when it comes to determining the right direction for a property’s repositioning. Blue-chip tenants want customization and lifestyle-focused environments that promote recruiting and retention of talent. That may require significant capital outlay, but it also will justify demand for a longer-term commitment. On the other hand, quality buildings that have been made to look attractive — even without amenities — can be successful, too. But it is important to understand that tenants will want to commit for less cost and less time (i.e. may be more transient).
Regardless, a broker can advise a landlord on what they can achieve in terms of attracting and retaining different tenant types depending on the level of investment they make. Landlords looking to catapult their properties into a higher class by adding amenities and modern features will be more likely to secure tenants willing to pay a premium and commit to longer lease terms. However, if the goal is to simply fill space, we are counseling landlords to upgrade systems and freshen-up common area finishes. While these kinds of updates will not garner a significant bump in rent or a lease roll filled with 10-year terms, they do serve to make an asset more competitive within its peer group.
At a time when commercial real estate technology companies are working hard to commoditize the brokerage business, in reality the involvement of a professional in bringing tenants and landlords together is more important than ever before. As the old adage goes, for every pot there is a lid. That is the good news. And brokers are the key element in matching companies to their ideal spaces and helping landlords create buildings positioned for success.
Samuel E. Horowitz is a managing director with Colliers International Group, based in its Parsippany office.
