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Make Better Leasing Deals by Understanding “Microclimates”

By Scot Ginsburg

Finding the best deal when leasing commercial real estate demands strategy. You might be a poker player who knows how to hold your cards close to your vest. Or, you may be something of a chess master, always thinking three steps ahead. Those strategies are key—but neither is more important than knowing how to read “leasing microclimates.”

With any weather report, the forecast varies widely depending on where you are on the map. Right? The local meteorologist may call for sunny skies on the coast, but it might be raining on the parade scheduled for Main Street in the inland valley.

It’s the same in the commercial leasing market. Regional trends regarding lease rates and occupancy levels provide a useful context, but to get the best fit for your needs and to drive the best deal for your budget it’s important to be aware of the dynamic nature of “leasing microclimates.”

The key to success starts with a clear understanding of your own space requirements and how they relate to the specific market area you’re targeting.

In general, if your space needs are in the 5,000 to 20,000 square foot range and you don’t have any specialized requirements, there are lots of options to consider. This is especially true if you have the leverage of location flexibility. A knowledgeable tenant representative can work with you to create an extensive list of possibilities and you can leverage market competition to drive a good fit at an attractive lease rate.

However, when your space requirements are up in the 50,000 to 100,000 square foot range, or even larger with specialized improvements, the options become much more limited. Since there are relatively few landlords with space in these size ranges, the microclimate market dynamics are quite different. These landlords generally are on top of all activity in their market. They know the competitors and watch closely for potential tenant activity. Therefore, you are at risk of influencing these microclimates as you search for space.

Worth noting: When office space rental rates are declining, industrial space may tend to be more stable. Location, size and real estate product type all have influence on rental rates and vacancy. You can’t bundle commercial real estate into one general group.

To drive the best deal, you need to formulate your approach much more carefully, with an eye on multiple microclimates. The market for these larger space categories is less flexible, but there are still strategies you can use to inject more elasticity into the market.

If possible, expand the search into other regions beyond just your preferred primary location. Remember, saving 5 or 10 cents on the rate for 50,000 to 100,000 square feet over the course of a five-year lease can be worth considering locations other than your first choice.

Another alternative is to split your operations into multiple locations. From an operational standpoint, splitting space is generally less desirable, but it’s worth looking at. Letting this alternative surface can help your negotiating position with potential landlords—even if you’re never going to do it.

Using these strategies can keep the market a little bit off balance and tilt negotiations in your favor. And keeping an eye on microclimate differences will help you know when to bring an umbrella to the negotiation table, and when to expect cloudless blue skies.

Scot Ginsburg is a senior vice president of Hughes Marino, an award-winning commercial real estate company specializing in tenant representation and building purchases with offices across the nation. Contact Scot at 1-844-662-6635 or scot.ginsburg@hughesmarino.com to learn more.

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