In a recent analysis of 148 US cities, San Diego’s 12.3 percent vacancy rate ranked 108th and was half a point above the national average of 11.8 percent.

As is the case with many major metropolitan areas, the downtown area had the highest vacancy rate while suburban markets had the lowest. Central San Diego which includes cities like Kearny Mesa and Mission Valley had a 9.4 percent vacancy rate while Downtown San Diego hovered around 16 percent.

Class A properties which have been hit hardest during the recession continued to see overall improvements in their vacancy rates and that will eventually lead to higher asking rates for Class B properties.

So what does this mean for business owners looking for space?

The answer is that the market is still in the tenants favor especially in Downtown San Diego but landlords with “close in” properties will be pulling back on concessions because they don’t need to negotiate as aggressively as they have in previous years since demand has begun to return.

Office deals are still available in throughout San Diego but in order to find and take advantage of the market’s best opportunities, you should contact Synergy Real Estate Group today. We offer free office locating and commercial lease negotiation services that can help you get the best possible deal in whatever market you’re looking at.

It’s important to remember that an agent while acting the part of a tenant representative but also handling listings is counting on the your lack of real estate knowledge in order to achieve the highest income possible at the lowest possible expense to the landlord.

If you are looking to lease space then you should seriously consider having a seasoned real estate professional who only works for tenants on your side, who is knowledgeable of the market and exclusively looks out for your interests.

This puts you in a better position when you begin looking for new space, as the corporate advisors/exclusive tenant rep’s goal is to get the best lease rates and terms on the tenant’s behalf, not the landlords.

No fee for our service

Some tenants have a fear that by engaging the services of a tenant representative they will end up having to pay more in rent to compensate for the brokerage fees. I’m sure you have also heard that hiring a tenant representative doesn’t cost you anything. The response we often hear to this is “the landlord just adds the brokerage fees on top of the lease rate.” So, who is right?

Similar to a hiring a buyer representative to help you find and purchase a new home, the landlord pays half the commission to the listing agent and half to the Tenant Representative for identify and representing your interests in the transaction.

When it comes to negotiating space, there is no question that a good tenant representative will not only save you money, but will also make sure you don’t make any critical mistakes.

Not to mention, these fees are almost always built into the lease rates. This fee is paid whether or not you have representation. These fees are split between the tenant representative (leasing agent) and the listing agent. There are no “additional” fees so you will not save anything by not having representation. In the absence of a tenant representative, the listing agent, who represents the Landlord will take the entire fee, no matter what they tell you.

At Synergy, we only represent tenants and thus taking the guess work out of determining if your agent is really looking out for your interests or those of the landlord.

John Galaxidas

President/CEO Synergy Real Estate Group, Corporate Advisory
(858) 633-0480

The new incubator will provide office space and access to computer systems to run tests/simulations for around 20 different companies. The program will also provide seed funding of up to $200,000 to help these companies grow and given President Obama’s recent executive order for the Commerce Department to invest heavily in cyber security, there is a lot of potential for the Cyberhive grow.

The incubator is following in the footsteps of bwtech@UMBC a similar initiative launched at the University of Maryland Baltimore County which is located just 15 miles from the National Security Agency at Fort Meade. The Maryland incubator also partners with defense contractors that may be interested in working with their companies.

If your technology company is ready to grow, contact Synergy Real Estate Group today. We’ve worked with a number of software, network and systems companies to identify the right office space for their needs and negotiate a competitive lease.

Going green is a booming business for companies that specialize in developing energy efficient systems not to mention the contractors that are hired to retrofit older office properties with energy efficient technologies. Often these upgrades are part of larger remodeling packages that replace older wiring and telecom systems to make the property more attractive to environmentally conscious businesses needing the latest technologies.

Energy efficiency not only helps landlords control operating expenses but office buildings themselves are some of the largest power consumers and it’s estimated that energy efficients systems in all Manhattan office buildings would cut the boroughs power consumption by 33 percent. That’s one of the reasons the Empire State Building recently had all windows replaced as well as energy efficient HVAC systems installed.

Even more interesting is the prospect of technologies that will allow office buildings to generate their own energy. One technology in development is the use of photovoltaic (PV) cells that can be directly embedded into exterior glass allowing a property to generate solar energy from its own windows.

Hines, the property’s developer, plans to take the technologies from La Jolla Commons II and attempt to replicate their success on a 600,000 square foot property that’s being remodeled in Washington D.C.

If you would like more information about current leasing opportunities in San Diego for energy efficient buildings, please contact Synergy Real Estate Group today and request a free property report.

Photo credit: Hines.com

Overall leasing doubled in Q3 compared to Q2 with nearly 840,000 square feet being leased. In Q2 leasing was just over 350,000 square feet as the market began to improve following three straight quarters of stagnant growth and vacancy rates holding just below 14 percent.

The news emphasizes that tenants looking for new space or looking to expand/renew at their current location need to act now because lower vacancy rates are adding negotiating leverage for landlords who have become less aggressive with concessions and allowances over the last few months. Though vacancy rates are still 5 percentage points higher than their lows in 2005, the difference between what landlords were willing to offer in 2010-2011 and what they are willing to offer now is significant.

Several big transactions helped boost overall performance including Illumina taking 160,000 square feet, TD Ameritrade leasing another 111,000 and SkinMedica moving into just over 70,000 square feet.

Positive leasing performance was seen mainly in the suburbs as Downtown San Diego remained unchanged with vacancy rates around 17 percent. In fact Downtown has only seen a net absorption of roughly 14,000 square feet for the entire year despite 13.5 million square feet of space.

Class C properties had the lowest overall vacancy rates while Class B had the highest at just over 19.5 percent. Class A properties were around 17.5 percent and will likely stay in that range as Downtown struggles to fill space and Class B landlords continue to offer competitive deals.

Since new office construction has been non-existent over the last few years, vacancy rates will likely head even lower since there is little new space coming online. The typical benchmark for new commercial construction is around 10 percent vacancy so we still have some time before new office construction projects begin to go forward. Year to date just over 440,000 square feet has come online and just under 1.2 million is in development (ranking 13th nationwide).

It is important for tenants to act now even if they still have 6 or more months remaining on their current lease. With market conditions slowly moving in favor of landlords, failing to act now can have serious financial implications especially for tenants seeking longer term leases.

Contact Synergy Real Estate Group today at (858) 633-0480 to speak with one of our experienced tenant representatives and begin the process of finding your next space today.

Built in 2007 just before the economic downturn, the 300,000 square foot building at 350 10th Avenue features beautiful stadium views from the upper floors and is reportedly 95% leased. Tenants include a variety of a major sports media, financial and software development companies and features an executive suite center for smaller companies.

If you’d like more information on office space in Downtown San Diego, contact Synergy Real Estate Group today. We’ve helped some of the world’s largest companies find office space in San Diego and other major cities.

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.

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.

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.

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 at858.633.0480 or visit our website at Sandiegoofficespace.org/san-diego-office-condos-for-sale/