So now that we have established that you absolutely do matter, what should you expect? You should expect to be taken seriously by your landlord because small tenants as a whole make up a significant portion of almost any landlords income. When negotiating with your landlord it is essential to know how valuable you are to them in order to get yourself the best deal. That is why at Synergy, we submit multiple proposals for you to leverage landlords against each other, and get them to realize just how valuable you are to them.

Another aspect that small tenants often overlook, is that they don’t often share a building with much larger tenants. It wouldn’t make sense to divide up a 50,000 square foot floor with one large tenant occupying 48,000 sqft of it and a small tenant the other 2,000. Large corporate tenants often take up entire floors if not entire buildings, which results in these buildings not being suited for small tenants as well. However, if you performed a survey of buildings in San Diego, you would find that there are may more buildings set up for and catering to small tenants than large corporate ones. Landlords in these buildings spend almost all their time working with small tenants like you, so to them you certainly to matter. So don’t be afraid to do your homework and ask for a fair deal, because your landlord cannot afford to lose you.

Buying the office space that you occupy brings with it some advantages. First off, by locking in your commercial mortgage, your real estate costs become fixed and you don’t have to worry about the economic uncertainty of rental rates rising and falling. The owner of a building is also often afforded tax deductions in the form of mortgage interest and property taxes that renters do not get to take advantage of. As you pay your mortgage, over time your property will build up equity, allowing you to sell when you retire, essentially using your building as a retirement fund. If you buy an office condo and discover its just too much space for your business, you can also sublet the additional space and add another source of revenue.

Buying office space isn’t all positive however and does have a couple drawbacks. Buying a space carries many more upfront costs, including a large down payment, closing costs, and property, appraisal, and maintenance costs. Also as many people can relate from their own experience with their personal residence, buying space provides much less flexibility than renting and cannot account for unexpected future needs. If your business continues thriving, you may outgrow your purchased location and be forced to sell and buy a new one. Coupled with the high initial costs of buying a new piece of real estate, this could slow the growth that caused your business to need more space in the first place.

A business also has the choice to rent or lease its space rather than purchase. The main benefit of leasing is that you don’t have to spend your time handling the details of the property and can focus on running and growing your business. Along with freeing up your time, leasing frees up capital that would have been locked up in your location if you had chosen to buy. This capital can instead be used to help grow the business. Not having a large mortgage obligation can also make it easier to obtain more capital through loans. Another less obvious benefit of leasing is that there will be more locations available to choose from and as such your business probably will be able to find a nicer location for the better rate. This benefit is more important for businesses that rely on visibility such as retail and medical offices.

The cons of leasing space go hand in hand with the benefits of not leasing, or buying office space. By not signing a long term mortgage and locking in your rate, you make your business susceptible to changing market conditions and possible increased rental rates. As a renter, you will not be able to build any equity in your space, and instead of your monthly payments building a retirement account for yourself, they will benefit someone else.

The lease or buy question does not have a clear cut answer and the debate will continue. However, each individual needs to come to a decision based on their unique situation, weighing the pros and cons of each alternative. Synergy represents businesses both looking to lease and purchase space and we will be happy to discuss your commercial real estate needs and whether an office condo is right for you. Please contact us at 858.633.0480 or visit our website at www.sandiegoofficespace.org/office-condos

In the fourth quarter of 2011, the San Diego office leasing vacancy rate dropped to 13.8 percent, the lowest it had been since it was at 14 percent in the third quarter of 2010.

The San Diego office rates still have a long way to fall, if it is to approach its recent low of 8.4% percent, which it hit in 2005, however it has already come a long way from its high of 15.3 percent in the first quarter of 2010.

The San Diego commercial real estate vacancy rate is still slightly higher than the national average, which currently sits at 13% percent, down from 13.2% percent in the third quarter and 13.5 percent from the year before.

The rental rate for San Diego office space however held almost constant from the third to fourth quarter, moving down one cent to $25.40, and for the year, was down from $26.05.

With San Diego office vacancy rates falling, one would expect office rental rates to start inching down but this is far from the case.

Over the last two years, vacancy rates have been on a wild “up and down” roller coaster ride, said John Galaxidas. As we enter into the Presidential election year of 2012, he expects vacancy rates will inch down creating a slight uptick in San Diego office rental rates, eventually leveling off or decreasing again slightly by end of fourth quarter of 2012.

If you are seeking to secure a great rental rate on San Diego office space, now is the time to either renegotiate your current lease or relocate to nicer, more cost effective office space.

At Synergy Real Estate Group our goal is to serve as the tenant’s advocate by providing them with detailed market information and local expertise to better understand the local commercial real estate market. This is a no-cost, no-obligation service to your company to help you determine if you can save money cutting your facility cost.

We understand the San Diego office market and since we only work with tenants we are able to show more properties than typical listing brokers and we avoid any conflicts of interest during the negotiation process.

If you’re unsure of the benefits of using a tenant representative, call us at: 858-633-0480 or use or quick contact form and we will be glad to go over the benefits our company provides relative to other firms.

If you’re currently looking for space or you know you’ll need space later in the year, contact us today and we will be happy to get the ball rolling.

-Brent Peterson

The transaction reportedly took less than 30 days to close after the property went under contract and the sale is hopefully a sign that institutional investors will be returning to the market. If you’re looking to lease space in downtown, contact us today and we can help you find your next office.

The company plans to use the money to pay for upgrades and relocations for three clubs in Balboa, UTC and Westfield Plaza. America’s fitness industry generates $40 billion annually and will continue to grow especially as more people commit to healthier lifestyles. Despite the lucrative nature of the industry, fitness companies and gym operators have to continually upgrade facilities and add / adjust programs to match trends and it can be frustrating but very rewarding at the same time.

Synergy recently completed fitness related requirements with MMA facilities and equipment sales companies and if you run a fitness or wellness based company and are looking to expand, contact us today and we can help you take the next step on the path to success.

If a tenant has a net lease they pay the landlord rent net of all the expenses, meaning that the tenant is responsible for paying a portion of all of the operating expenses for the building including maintenance, insurance, and tax expenses.

For a gross lease the landlord is responsible for paying the operating expenses. Often time the first year of a lease the tenant will be considered the base year, which means the landlord shall cover all the operating expenses. If in the second year of the lease the operating expenses exceed that of the base year then the tenant shall be required to reimburse the landlord in the amount that the expenses exceed that of the base year. Some landlords are willing to negotiate caps on the amount that the operating expenses can increase per year and be passed onto the tenant. For example, say in the base year the operating expenses were $0.50/RSF (Rentable Square Foot), and in the following year the operating expense went up to $0.60/RSF.

If the lease agreement did not have a provision capping the operating expenses for the tenant then the tenant has to reimburse the landlord $0.10/RSF in the second year to cover the increase in operating expenses. If a provision had been negotiated into the lease that capped the increase of the operating expenses for the tenant at 5% per year instead of reimbursing the landlord $0.10/RSF for the year they would only have to reimburse $0.025/RSF (0.05* $0.50= $0.025) for the year. Another issue that may arise in a vacant building is explained below:

One may ask well what if the building is 80 percent vacant and only has two small tenants in the building; are the two tenants then responsible for covering 100 percent of the operating expenses for the building even though they only occupy 20 percent of the building? The answer to this question is no, because “most” modern commercial leases whether it be a standard AIR or a landlord’s custom lease there should be a provision in the lease stating that the “Operating expenses for any calendar year during which actual occupancy of the Project is less than ninety-five percent (95%) of the Rentable Area of the Project shall be appropriately adjusted to reflect ninety-five percent (95%) occupancy of the existing Rentable Area of the Project during such period.” In other words, a tenant in a vacant building should be protected from covering an outlandish portion of the operating expenses for the building, because the landlord will always calculate a tenant’s share of the expenses as if the building were 95 percent occupied.

The above is a simple overview of net and gross leases. Whether your company is looking for a new location, renegotiating your lease, looking to downsize, or looking to upsize, it is 100% to your benefit to partner with a knowledgeable tenant representative to help you located a site and negotiate your lease. The services of a tenant representative come at no expense to your company and in the end could save you company a substantial amount of money on your bottom line expenses for office or warehouse space.

Sorrento Valley and Mesa are easily accessible from all areas of San Diego County. If your employees or clients are coming from North County it is a quick shot down Interstate 5 for them to reach the office. If they are coming from south of La Jolla or Miramar it is a short ride up Interstate 805 or Interstate 5. Although no location is perfect for all employees or client the Sorrento area definitely offers a location and access better than many other office markets in San Diego.

Offices are more economically priced than spaces in the neighboring submarkets of Del Mar, Carmel Valley, and UTC. Sorrento Valley even though the prices are lower than its neighboring submarkets still has a high professional and corporate appeal. Office rates in the Sorrento Valley and Sorrento Mesa area will range from $1.25/SF up to $2.50/SF.

If your company is looking for or thinking about acquiring office space in the Sorrento area it is best to team up with a professional and solid tenant representation company such as Synergy Real Estate Group, Corporate Advisory . You can visit our San Diego listing information websites by clicking the following links; San Diego Office Space, San Diego Warehouse Space, and Warehouse for Rent in San Diego. By working alongside a solid tenant representative your company will be in a much better position to acquiring office space in the Sorrento area. The services provided by a tenant representative come at no cost to their clients.

A number of issues could signal that your landlord is having difficulties, or may be headed in a direction that leads to losing the building.

1. Significant increases in vacancy in your building
2. Increases in vacancy in other buildings where your landlord has an ownership interest
3. Construction projects that start at your building but, languish unfinished for extended time periods (typically a sign that contractors are not being paid on time or at all)
4. Decline in response time and / or communications for service, maintenance, or repairs (a sign that staff has been cut or is stretched too thin)
5. Increase in equipment and system breakdowns, such as elevators, HVAC systems, etc. (indicates a decline in preventative maintenance, staff cuts, or more)
6. Fewer landlord or management company employees visible on site
7. Decline in security, life and property safety services
8. Consistent lack of consumable items in restrooms and other areas
9. Interior office, common area, or window cleaning occurs less often
10. Trash not disposed of in a timely manner or is stored in basements and other areas
11. Landscaping not updated or maintained and / or grass is cut less often
12. General deterioration of the appearance of the building, parking lots, and grounds
13. Deferred capital improvements
14. Preventative maintenance announced or planned but, not implemented
15. Floors, glass, and metal and other interior components not polished or maintained
16. Band-aid repairs being made in place of needed capital replacements
17. Real estate taxes delayed or not paid
18. Mortgage payments delayed or not paid
19. Water, utility, or other payments delayed or not paid
20. Increase in unresolved or unpaid fines from the municipality and / or other governmental authorities
21. Substantial and / or unexplained increases in operating expenses and costs of landlord or management company provided services passed on to tenants
22. Real estate brokers unwilling to show your building to prospective tenants, meaning that landlord is unable or unwilling to pay commissions. This is typically the sign of a landlord low on cash.
23. Contractors seeking payment from you instead of landlord (indicates a lack of confidence on the part of contractors in their ability to be paid on time, in full, or at all)
24. Multiple switching of leasing and / or managing agents, building managers, cleaning companies, security services, vendors, service providers
25. Landlord selling other assets
26. Landlord’s inability to sell or refinance your building
27. Change in landlord’s leasing program – agreeing to many short term leases to small, transient, and / or undesirable companies

What can you do to protect your company and assure that your environment remains productive, safe, and profitable, and that your company receives the services to which it is entitled?
Imagine planning and executing a well designed defensive operational and financial strategy, only to find out that the real estate your company leases may not be under your control and that the space may be pulled out from under you! Your landlord may not be as good at pruning expenses and could lose your building, throwing into question your company’s rights to remain in its space.

Even if you have been paying rent you may not be able to stay in the building if the Landlord loses the building. It depends on a number of factors, to who will end up with it, to what the process will be if the landlord does lose the building, to how thorough your company’s lease was negotiated in the first place and what protections that document affords you.

The first step is to read your company’s lease. Check all of the clauses that might impact your occupancy, including those pertaining to non-disturbance, landlord default, self-help, sublease, early termination, and others. Since your lease constitutes the rules of engagement, be certain to understand your company’s rights, privileges, and obligations, in the event of a serious landlord problem.

Make it your business to understand all lease components that could affect your company’s ability to remain in the building if the landlord were unable to support it financially. Specifically, does your lease provide for self-help (the ability to secure services that the landlord fails to provide) in the event that the landlord defaults in providing services to you? Can you contract for temporary cleaning and other services? Can you secure utilities directly from the utility provider? Can you do the above without putting your company into default of its lease?

What if the landlord actually goes bankrupt and ownership of the building reverts to the lender? Can the lender terminate your lease? Maybe! Does your lease require the landlord to secure a non-disturbance agreement for you from the lender? Has the landlord provided you with that document? A non-disturbance agreement, if written properly, will most often prevent a successor, like a lender, from terminating your lease.
By now, you’re likely asking: “Why would a lender terminate our lease? Wouldn’t they prefer to retain rent paying tenants?”

That, too, depends! It is possible that your building could have a greater value or a greater likelihood of being sold if it were vacant. Perhaps a larger tenant, or one that for some reason is more desirable, may want your space. Or, maybe your company’s use of its space is not conducive to the lender’s future plans for the building. Without a non-disturbance agreement, your company could receive notice to vacate and have little choice.

When commercial landlords experience financial difficulties, the tell tale signs may be easy to spot. In many cases, payments to vendors, service providers, taxing authorities, and others become delayed or are sometimes not paid at all. In others, the building shows signs of neglect.

If you believe you have reason to be concerned, do a little detective work. Check with the local property tax dept, utility companies, and other building services providers to confirm that bills are being paid in-full and on-time. Ask around, too. Are vendors, commercial real estate brokers, contractors, and others being paid in-full and on-time? But, be careful here. You wouldn’t want to spook anyone and create concern about your landlord if problems don’t exist.

With a Tenant Representative from Synergy Real Estate Group we can guarantee you will not have a nightmare ending. At Synergy Real Estate Group, we provide value to our clients because we only work with tenants and can show them the complete market inventory as opposed to listing brokers that only show their own properties. We do not represent landlords and that allows us to avoid any conflicts of interest during the negotiating process. We have successfully helped businesses ranging from startups to Fortune 500 companies locate space in San Diego and Nationally. Contact us today and we can provide you with a free consultation regarding your office space needs. Remember, your primary business is running your company. Synergy brings a diverse “skillset” of not only the best but the most respected local corporate real estate tenant and buyer representives in the US and Canada who specialize in office, industrial and retail space including 3PL Space, temporary office and warehouse swing space and executive suite space. Do the right thing by your business and contact Synergy Real Estate Group today!

Del Mar and the surrounding areas are becoming a hotbed for leasing activity in San Diego especially for class A. With higher than average vacancies and landlords willing to make deals, leasing activity is beginning to pick up. If your business is interested in leasing space, contact one of our advisors for more information

While I appreciate the proposals and think they are well thought out, if implemented, they would produce an incredibly negative effect on the commercial real estate market.

There are two items that I am specifically referencing:
- Cutting defense spending by $100 billion
- Reducing the federal workforce by 10 percent

While its important to review spending and look for ways to optimize efficiency, each proposal could devastate the commercial real estate market. Obviously reducing the federal workforce by 10 percent would result in cuts of at least 150,000 to 300,000 jobs. If we say that the average amount of space allocated per employee is 200 square feet (keep in mind space for hallways, conference rooms, executive offices) then we’re looking at a loss of up to 60 million square feet of space.

Furthermore cutting defense spending would produce even more losses as contractors would have to cut back on space and each proposal would hurt landlords in the DC area and beyond.

I realize the precarious financial position that our country faces but I think that any cuts should be thoroughly reviewed and phased in over time to allow any negative market reactions to be absorbed gradually rather than a large shock that would produce a destabilizing affect in the market.

In the NYC example, the SEC needed to find space following the Sept. 11th attacks and when their new space was discovered to have asbestos, they quickly moved to a new location. They were under the impression that their landlord would assume the remaining obligation on their lease but that did not happen and subsequently the organization has been paying rent on two spaces, one occupied, one unoccupied for 5 years.

In 2009 it was revealed that space leased in San Diego for California’s Department of Corrections and Rehabilitation went unused for four years between 2004 and 2008. In that case it was stated that bureaucratic mismanagement and communication issues were the factors behind the oversight.

The building was constructed by Newport National Corp. and is the only publicly available property over 25,000 square feet completed this year. Despite the economic climate, factors including low construction costs and low interest rates made it more appealing to complete the project.

The Class A building is located in Carlsbad and features everything from koi ponds to a fitness center.

It is vital to understand these three components and how they interact in order to get the most value out of your office space. When tenants find themselves trapped in office space where they are overpaying for or under-utilizing, it is because they failed to adequately address one of these factors.

The first component is location which drives costs for both labor and leasing which the Landlord will strive to maximize compared to what the current market conditions will bear. These costs can vary significantly both among market areas and the situations of particular business owners. We provide clients with a comprehensive evaluation of individual cities and communities to uncover hidden opportunities, define costs and reveal value that is often overlooked.

Leasing is the second factor because it requires an understanding of current market conditions in order to negotiate favorable financial terms that compliment the objectives of your company. Great deals are not just sitting there for you to find. They are structured through an effective negotiation strategy. In San Diego, landlords are offering more flexible lease terms and aggressive concessions to attract dependable tenants. To take full advantage of these favorable market conditions and create leverage in lease negotiations we advise using an experienced tenant representative.

The third component for cost effective space is layout. Maintaining cost control over the design and construction process will be a major contributor in keeping occupancy costs down. A lot of companies today are increasing their focus on space utilization with the objective of doing more with less. Securing the right amount of office space through efficient design, space standards and construction management can produce significant cost savings.

All three components interact in different ways and its in the best interest of any business to use a tenant rep to help them navigate throughout the commercial leasing process.

SDNEDC will create an incubator for startups by providing relatively inexpensive office space combined with organizational and legal support to help them grow. So far the development council has received interest from a variety of sources including attorneys, professors and CPAs who see the project as a way to give back to the community and even develop new clients through successful program graduates.

An additional incentive for the center is that companies that expand past the incubator stage will be required to stay in Escondido for 3+ after leaving the program or else they will face possible penalties.

The decline in North County is welcome news after vacancies reached an astonishing 28 percent for the same time last year. The area still has a 22 percent vacancy rate but the market continues to improve and rates could drop below 20 percent in 2011. Leasing activity is climbing as Class A office space becomes available at bargain prices relative to the market’s peak. Some of the activity can also be explained by the fact that upper level employees tend to live in North County and can sway leasing closer to their homes.

Landlords are offering tenants unprecedented concessions including additional free rent and more willingness to negotiate lower rents making the area even more attractive.

If you would like more information on office space in North County, contact our team of commercial advisers who will be happy to review your commercial requirements and find great space that fits your needs.

As a result of the higher vacancy rates, asking rents have fallen more than 10 percent year-over-year and there are some great deals out there for companies in a position to lease or renegotiate.

The market outlook for industrial space has been improving though as negative absorption continues to decrease which indicates the market may be stabilizing. We recommend contacting a tenant rep if you’re looking for new space or have an expiring lease and want to know more about your options.

During the negotiation process, the terms that will make the biggest impact in the value of the lease are negotiated first. These include the monthly rent per square foot, the location, the size of the space, the length of term, and the tenant improvements to be constructed by the landlord. These items are often settled through the letter of intent (LOI) or request for proposal (RFP) process and after these are set, you can then begin to negotiate secondary components of the lease.

There are two methods for this process, the first is to start from the beginning of the lease document and negotiate your way to the end. The second method is to address the most important issues first then work your way down to the least important.

For example if you believe there is a high probability you will sublet the space you may want to address that portion of the lease first. More often than not the lease will be drafted by the landlord and the sublet portion of the lease will favor the landlord. Usually the application fee to sublet space is $500 to $1,000 dollars which may seem reasonable if you are a large tenant and with a large space but if your monthly rent is approximately $3,000, a $1,000 application fee may be excessive and should be negotiated down.

Additionally your landlord usually has a clause that states if the tenant sublets the premises at a rate above the rate that they are paying, the landlord will be entitled to 100% of the profit and not the tenant. This is also an issue that should be addressed.

The only downside to negotiating critical items first is that if the landlord concedes on what they believe to be your most important concerns he may be less inclined to negotiate other issues within your lease. This is why a simple approach of negotiating from beginning to end may work to your business’s advantage.

No matter what approach you use to negotiate your lease in San Diego or in any other market it is always best to team up with a tenant representative because their input will be crucial to getting a lease that is fair to both parties.

The first two pages we have put up are: Downtown San Diego and Oceanside and we will be adding more pages throughout the week. If you would like for us to prepare a best deals report, tailored to your specific needs, contact us today with your requirements and we will be happy to help you begin your search.

Current vacancy rate for office space: 15.3 percent
Current vacancy rate for industrial / warehouse space: 11.2 percent
Current vacancy rate for retail space: 5.4 percent

Office Space
Total number of buildings: 5,315
Total square feet: 110.7 million square feet
Available Space: 16.9 million square feet

Class A vacancy rate: 19.1 percent
Total square footage: 31.6 million square feet
Available Space: 6.06 million square feet

Class B vacancy rate: 16.5 percent
Total square footage: 52.5 million square feet
Available Space: 8.66 million square feet

Class C vacancy rate: 8.3 percent
Total square footage: 26.6 million square feet
Available Space: 2.21 million square feet

Listing rates for office space in UTC are on average slightly above $2.00 per square foot. The bottom line rates for certain class C buildings will start in the upper to mid one dollar range. The pristine office locations as well as high end medical space will approach the four dollars per square foot range.

Some of the well known office buildings in the UTC area include The Aventine, The La Jolla Gateway Building, Nobel Corporate Plaza, and The Plaza.

Listing rates range between $2.00-$3.00 per square foot with Class C buildings providing the least expensive options at around $1.45 per square foot. The most expensive listings in the area include Class A properties along Prospect Street as well as high end medical space that will approach the four dollar per square foot range.

The area is known for its eclectic mix of architecture and some of the more well known office buildings include the Merrill Lynch building, the Manchester Financial building, and the La Jolla Financial building. The community itself is known for its multi-million dollar homes, beautiful coastlines, the famous cove, and four star restaurants.

The area and its amenities attract a wide variety of businesses and provide their employees with access to a number of great housing, shopping and recreation options. In recent years, leasing space in La Jolla may have been a cost prohibitive move but now with more options and lower rates, businesses that may have passed on the area are now re-evaluating their options.

Right now companies looking to lease or renegotiate an existing lease can get lower rates and better incentives than what they were able to get during the peak years before the recession. In fact many businesses are able to negotiate rents that are 10 to 20 percent lower than the asking rate and can receive free rent and other valuable incentives depending on the term and size of the space.

We decided to try shooting some videos regarding office space in Encinitas and La Jolla to see whether the videos are effective at communicating to users why they should choose Synergy. We can write page after page of material explaining that we know the commercial market, know how to negotiate your lease and can save you money but sometimes a 1-minute video can be more effective than an essay on commercial market factors.

Check out the videos on our Encinitas and La Jolla office space pages and subscribe to our YouTube channel. We plan to provide you with more videos and content so stay tuned.

To start, it is important to note that some landlords simply won’t renegotiate any terms. Whether it’s because times are tight for them financially or they just don’t have the latitude to do so. On the other side, some landlords, afraid of losing a crucial tenant on whom perhaps renewing their financing terms is contingent upon, might just drop the rent in anticipation of future goodwill value. The truth of the matter is that most landlords don’t sit firmly on one side or the other.

If a property owner is most interested in long term yield, they are almost always willing to consider any proposal that will provide them with greater long term benefits.   Most pension funds, private equity investors, and many individual landlords fit in this category.  The reduced rent goal of the tenant and long term value goal of the landlord are not mutually exclusive.  Both parties achieve what they sent out to do.

In the same way that you can take a bank loan and amortize it over a longer period of time to reduce your payments, you can agree to extend your lease at market rates (if below your current scheduled rate) and get the landlord to effectively “tear up the lease” to provide an immediate reduction in rent. For an increase in savings, or if market rates are equal to or above your current rate, you can also give back a portion of the space to the landlord.

For example, if the existing lease is for 10,000 SQFT of office space at $25/SQFT and two years remain, the remaining obligation is $500,000. If the market rate is now $20/SQFT and you only need 6,000 SQFT, restructure the lease by adding three additional years of term (6,000 x $20 x 5 years = $600,000). This provides the landlord with an additional $100,000 of value on the lease. It also drops the tenant’s rent by more than half, from $20,833/month to $10,000/month.

Will every landlord take the bait?  No.  Will a good majority of them?  Yes, so it is worth your time and effort.  This is just one example, and there are many creative ways to accomplish similar benefits to create a situation where both parties benefit. The key to gaining the landlord’s interest is to structure the lease so that the new total obligation exceeds the obligation remaining on the existing lease. Our company Synergy Real Estate Group, Corporate Advisory (www.synreg.com) , can help you learn more about this strategy as well as others.

Companies develop strategic plans that address such things as gross profit margins, revenue streams, employee salaries and incentives, marketing campaigns, R&D expenditures, and overall operating expenses. Real estate costs are factored into operating expense, but the impact of these costs on the company business strategy is often ignored because often the company sees no strategic way to reduce the cost of their real estate needs.  Real estate costs for most companies accounts for the second largest indirect operating expenditure. The goal for all companies should to create a plan that reduces their company’s real estate expenses.  A tenant representative or corporate real estate advisor can be vital to this plan.

Many people believe that if they do not know where they are going, they do not care how they get there.  If you get in your car without knowing the best route to your destination you may end up wasting a lot of time and gas money.  The solution to this problem is that many people purchase a GPS system.   If a company wants to take the most effective route to taking care of their real estate needs they need to get a “GPS system”.  In real estate a company’s  “GPS system” can be seen as a corporate real estate advisor or otherwise often termed tenant rep.  The beauty of working with a corporate real estate advisor is that their services come at no expense to the company.  So in a sense a corporate real estate advisor is like having a free GPS system in your car.

Corporate real estate advisors will save a company time and money by doing all the market research , sorting through listings, arranging a date to tour multiple properties, and leveraging landlords against each other to compete for a company’s tenancy.  Corporate real estate advisor even go as far as reviewing the lease documents and adding their suggestions which landlords will often concede to in the current real estate market. Their local market knowledge can also lead a company in a direction of potential locations and even landlords that could benefit a business.

A corporate real estate advisor is paid by the landlord when they close a deal for a company, so the company never has to pay out of pocket for the services they receive.

In addition to attractive rates, many landlords are agreeing to other request of tenants, as these landlords are trying keep their building profitable or in many cases just no lose ownership to the banks.

Many tenants in San Diego market are now able to get immediate release from their current lease obligations so they can renegotiate new terms that are more in line with the current market levels.  Landlords are often trying to attract tenant with free rent negotiated through out the term of the lease.  Many of Synergy’s client’s have been able to obtain more than one month of free rent per year, depending on the term of the lease.  For instance we recently negotiated a deal for a client in San Diego that committed to a term slightly longer than five years, and we were able to negotiate seven months of free rent for our client.  The majority of the free rent was given at the beginning of the term and distributed between full months of free rent and half months of free rent.

Another tactic that landlords are often given into in the current market is “phase-in” type rental rates.  By this I mean that the landlords are willing to have the tenant pay for a certain percentage of the space they will occupy for the first year and then gradually pay for more and more space until they are eventually paying rent on the full space.  For example we recently had a client who moved into a about a 5,000SF space in Encinitas.  For the first six months they will only be paying for 3,500SF.  During month seven through twenty four they will be paying for 4,500SF and for the remainder of the five year term they will pay for the full 5,000SF.  This is a good example of how landlords are willing to work with creative tenants to make a deal happen and in the end save the Tenant money and make the landlord happy because his building now has less vacancy.

Landlords are also being more flexible on the type of options they are allowing the tenant to have negotiated into the lease giving the tenant more flexibility on their real estate decisions.  Often the landlords will allow options to terminate the lease or to extend the lease with predetermined rates.  The option to terminated most of the time will come with a monetary penalty for the tenant.  Synergy has negotiated many of these types of options into our clients’ leases.

Good Sign’s for the Economy:

At a recent meeting of Financial Executives International (“FEI”), Robert DiClemente, U.S. Economist at Citigroup said:

• “We’re finally seeing job growth!”
• “200k to 300k job losses to 125k new jobs in the month of March”
• “44% of people who are unemployed have been out of work for at least six months”

Another recent good sign was that in May 410,000 jobs were created across the United States.
A few retailers are beginning to report increases in revenue and are increasing inventories, and manufacturers are getting in gear to support them. In certain industries, executives are going back to work. Logistics and shipping industries report steady increases in orders. Some industries are starting to report consistent month over month revenue gains. These are not large gains, but they are consistent and they are increasing.

Continued Challenges Call for Cautious Optimism
Despite the good news above negative events could derail the potential growth supported by the good news above. Banks selling commercial properties at discounts to market could cause real estate markets to gain ground through increased transaction volume and lending activity, while creating a further decline in already significantly depressed values in San Diego and all commercial real estate markets.

With commercial real estate lenders seeking to off-load foreclosed properties, investors are making very aggressive, low-cost bids. In more than a few cases, banks are acquiescing to such offers in the interest of moving those properties out of their defaulted loan portfolios. The market expects this trend to continue.
So, as the volume of foreclosed sale transactions increases, the overall value of commercial real estate, will likely continue to decline for some time.

So, at the same time, commercial real estate markets could experience increases in sale transactions with declines in value. It is reasonable to assume that as bank pipelines of foreclosed properties empty and the volume of low-priced lender inspired transactions subsides, prices would then stabilize and begin to rise. But, when will that happen?

In a recent television interview, Andrew Florence, President of CoStar, the major commercial real estate database, was quoted as saying: “$1.4 trillion in commercial mortgage debt will expire in the next few years.”
With this much debt expiring and being replaced with mortgages at lower loan-to-value ratios based on lower valuations, how long will it be before commercial real estate prices begin to firm up again? How many billions of dollars in value could be lost until then?

If someone isn’t familiar with the term tenant representation, at first glance it seems like tenant reps are just apartment locators for commercial space. However tenant representatives are more like business partners because not only do they work to find the perfect space, they work to negotiate favorable lease terms for their clients, saving them money and providing them value throughout the leasing process.

Why Use a Tenant Representative?

It helps to have one person acting on your behalf while negotiating several sides against each other. A good broker will show you ten different spaces whether you are renewing a lease, or moving to a new space. You will choose the three that best meet your need and leverage them against each other to get the best deal. A broker listed on a website for a building you may be interested would certainly be happy to work with you, but it takes a tenant representative broker to truly work FOR you. Tenant representatives’ best interests are with the client, not the landlord. Building brokers work for the landlord of the building.

Tenant Reps Know the Market

You want someone on your side that knows the San Diego commercial market and its current conditions. The Internet certainly provides information, accessibility, and even helpful advice, but the value added by a tenant representative is unparalleled. Tenant representatives make sure that landlords do not take advantage of their client by conducting exhaustive reviews of lease proposals and taking into consideration individual business needs.

We Know the Leasing Process

Your lawyer is not able to leverage landlords against each other whereas a tenant representative can say “If you don’t take this provision out, I’ll take my client to the building across the street.” Only a tenant representative broker knows the scope of the market well enough to make those sorts of demands.

You Save Money

A tenant representative broker will save your business money. Your tenant representative will get you the best space for a better price. Because they look at the process from a business perspective, they’re sure get you the best deal possible by combing leases and searching through spaces and different landlords. For example, without good representation, the tenant may sign on to an improvement allowance of $40 per square foot, not knowing that the actual market price for such work is $30. The tenant representative knows the market and would negotiate that any remaining funds be applied to lower the rent. (For a 50,000 sq. ft. building, that would mean a savings of $500,000.)

We Provide Our Services at no Cost to You

A tenant representative is free to you! You get professional advisory services without spending any of your own money. The tenant representative gets a commission that comes from the landlord’s pocket pre budgeted from marketing expenses. It’s the landlord that’s paying for the service, not the tenant. The tenant representative splits the commission with the listing broker when the deal is closed and if there is no tenant representative the listing broker is compensated the entire commission.

Large companies will most often manage the real estate lease renewals process themselves, assuming that lease renewals are quickly negotiated and inexpensive when managed by in house personnel, and that outside brokers will slow the process and add a cost.  But if a company factors in the time for each negotiation, including internal staff discussions and meetings, research into current market values per location and the back-and-forth with the landlord’s agent, a corporate real estate team will quickly find itself extremely busy with a task they thought probably would be a quick and easy negotiation.   When the team’s time is focused on lease renewals, the team is unable to focus on higher corporate priorities like strategy, acquisitions and dispositions.

Companies often discover that time dedicated to lease renewals is better spent on strategy and counting on a trusted outside advisor to renegotiate the lease to free up internal personnel resources for maximum corporate benefit.

Choosing the Best Partner

Companies outsource work all the time.  Whether it is for accounting and administrative support staff or janitorial and foodservices, the company is able to accomplish their goals without sacrificing internal staff on a time-consuming project.

Lease renewal is often a time-intensive process that may also be managed by an expert to avoid incurring unnecessary costs at each renewal.  The challenge is even greater when spread across dozens, if not hundreds, of locations per year. Managing each location’s renewal can become all-consuming.

When renewing a lease for a specific location, the best outcome is a commercial lease agreement that utilizes the leverage of the firm and other market opportunities for relocation, maintains a positive relationship with the landlord, provides flexibility for the future, and includes incentives or value-add for necessary or cosmetic upgrades, or reduced rent.  Companies want each lease renewal handled with care to a favorable result, so finding the right trusted advisor is a critical success factor.

Although each lease renewal situation is unique, the right outside partner should meet specific criteria, including experience in the commercial market, good communication and diplomacy skills, have the ability to present all reasonable options to the company and recommend the best strategy to move forward.  The partner should also posses the analytical skills to compare lease versus lease options and leave versus buy options.

So most individuals and small businesses are taking steps to go Green, but what about corporate America?  When considering office, industrial and technology real estate alternatives, how concerned are corporate executives about taking their corporations in a Green direction?  Do they actually view Green buildings and spaces holding a higher value?  Are landlords of commercial projects building a lot of Green buildings?

In this sluggish economic environment, are public and private companies concerned enough about going Green that they are willing to fork over the extra cash needed to do so?   Many experts say that with so many Green products now available, going Green no longer costs any more than traditional non-Green alternatives. If this is the case then why aren’t more corporations headed in the direction of going Green?

A question San Diegans and all people should be asking is when the will the economy as a whole begin to recover and achieve balance.  This is because commercial real estate is dependent on many economic factors like consumer purchasing, employment numbers, and business growth. Therefore when we begin to see a consistent increase in these numbers we can then expect to see the commercial market turn after the economy shows signs of growth.

A major determining factor in the demand for office space is job growth.  If San Diego companies begin hiring more employees the demand for office space in San Diego will increase, driving office rates up and vacancy rates down.  Obviously this is true across all local markets and globally, but everyone knows San Diego is the most important city in the world…

Demand for leasing of warehouse space will occur when consumers and business begin to increase their spending on a consistent basis.

Spending habits will have a positive impact on retail real estate leasing, as well. Spending habits correlate back to employment figures, because when people are employed they are more likely to be spending their money on eating out at restaurants, buying new clothes at Fashion Valley, or maybe purchasing some extra Charger gear to wear to Qualcomm Stadium.  So in my opinion it really comes down to jobs.  When the job market actually begins to pick up again the economy will begin to turn, spending will increase, companies will grow and the commercial real estate market will begin to see a recovery.

But when will the actual recover occur?  Many professional say they expect to see a recover in the commercial leasing market around two years from now.  No one is to know for sure when the economy will turn and how often are economist right about the future?  But the commercial real market has historically been a lagging indicator of economic conditions.  Therefore once the economy does turn we can expect to see the commercial real estate market begin to see a recovery around nine months after the economy begins to strengthen and the Class A Office Space in UTC may not look like such a ghost town.

Talk of the bad market brings me back to my last post dealing with long term vs. short term leases in a down market.  The down economy should lead to more intuitive partnerships between landlords and tenants.  Tenants will pursue short term leases to retain flexibility in their business real estate needs, despite landlords’ willingness to offer even further reduced rates for long term lease contracts.  Some landlords however may still favor short term leases, hoping they capture increased rental rates when the economy turns.

One opportunity that has arisen for tenants with stable business in 2010 is relocating to class A buildings.  As new landlords purchase distressed commercial properties they will be able to operate with lower rental rates than landlords who purchased their properties during the peak of the market (2005-2007), driving rentals rates even further down.

As a whole for 2010 one should expect office rental rates to continue to decline and vacancies rates to continue to climb.  Today office vacancy rates are around 16% in San Diego and according to UCLA computer models the vacancy rate may reach 22% by year’s end.  The troubled market will lead to more creative lease terms between landlords and tenants and difficult times for many business and landlords, but if businesses and properties are managed effectively some will take advantage of the down market and come out on top when the economy bounces back…

- By Brent Peterson (bio / current market conditions)

A: For some companies, short-term leases are the most appropriate market strategy. However, when seeking to renegotiate leases as a means of creating liquidity and limiting risk, short-term extensions offer little value to landlords. Consequently, in those instances, short-term leases would similarly provide little value to tenants.

With the huge lack of demand for leased office space in U.S. commercial real estate markets, landlords are interested in attracting tenants, and keeping tenants they already have. With strategic planning, most landlords can structure transactions that permit them to gain new tenants and restructure existing leases, increasing the occupancy and cash flow in their buildings. At the same time they are able to support the business and flexible needs of those tenants.

Now as a tenant, should one sign a short term or long term lease in the current market? The benefit of a short-term lease strategy is flexibility. Having the flexibility to change a company’s real estate needs can be valuable, but also costly. When signing short-term leases it is often difficult to secure lower overhead rent expenses for a tenant’s business.

When prices are low in any commodity, the savvy investors, such as Warren Buffet, stock up and buy more for future use. This is true in commercial real estate, as well. By executing longer-term leases, tenants are able to secure lower rent expenses, while providing landlords with the cash flow they need to run a successful property. With longer-term leases, landlords can provide benefits to tenants that make transactions profitable for both parties.

The cost of signing a long-term lease includes less flexibility when it comes to ever changing real estate needs. Most companies don’t really need the flexibility they seek when it comes to their real estate needs and usually overpay for the privilege of flexibility in short term leases.

There is not one profitable strategy when it comes to signing a short or long term lease. It depends on the needs of both tenant and landlord. A well thought out business plan and an understanding of commercial real estate markets, as well an understanding of the challenges landlords face, is the best approach for companies to decide on the term length of their lease.

If you have a question about the current commercial real estate market, contact: brentpeterson@synreg.com