By Barbara Gross, Sheldon Gross Realty
We’re experiencing a once-in-a-century moment, as we strive to put the pandemic’s impact behind us. Without a precedent for guidance, we have all manner of “experts” telling us the market’s down … or brimming with opportunity. Further complicating matters, the situation varies based on geography, industry, and also the type of property with which we’re dealing.
My customers have a range of perspectives and attitudes. Fortunately, many have leases, which limits their overall exposure and enables them to be somewhat nimble. But, even leasing presents pitfalls – many of my customers still aren’t quite ready to make longer-term commitments. That said, when work’s required to build out their spaces, they quickly discover it can’t be amortized over the shorter term, and is instead added to their base rent. Compounding this, interests rates are increasing, impacting the cost of work landlords finance.
Just 3-5 years ago, building owners could sell with relative ease. Interest rates were low, as was inventory – particularly for industrial and flex buildings. A new phenomenon is that while the current industrial market remains relatively tight, we’re now seeing office buildings sell for less than industrial properties … a situation that, just a decade ago, would have seemed impossible. In fact, we’re even seeing office structures leveled and the land rezoned. I wonder if the pendulum will swing so far the other way that office space inventory again tightens and prices increase once again.
So, what am I seeing with my current customers as they address their real estate needs?
• Two law firms, both expanding – with one adding a new satellite office. Both continue to provide private offices for each attorney; libraries are gone. Conference rooms abound, and they’re often showplaces, while file rooms are shrinking as all records are digitized. And, as with other industries, kitchens have become centers of collaboration, with gourmet snacks and coffee.
• A couple of companies are being acquired providing great sublease opportunities, with emphasis on below-market rents, decent lengths of time remaining, and new furniture available for free.
• A shipping customer with international contracts recognizes the world’s changing – including a radically different layout, reflecting hybridization in office versus home schedules – resulting in a reduction of its office footprint.
• A customer, listening to his golf buddies’ tall-tales about how much they got for their buildings, continues rejecting appropriate offers for his own. And, his building continues to sit, unsold.
• In a “B” building I’m marketing, we’ve signed leases with three new tenants in six months, with a fourth in negotiation. Why this success? Low rent, plus the landlord’s willingness to offer short-term leases. This is important to assuage the economic fears of companies. And as we’ve all seen, once ensconced in a building, tenants are disinclined to move unless motivated by space-related considerations.
These are scary times for everyone, from brokers to owners to banks to corporations. I do believe that “this, too, will pass,” but we need more creative marketing, persistence, and careful listening to our customers’ new and very different needs.
Fortunately, we’re in a business that continues on through thick and thin. To quote Gone With The Wind’s Gerald O’Hara, “Why, land is the only thing in the world worth working for, worth fighting for, worth dyin’ for, because it’s the only thing that lasts.”
Barbara Gross is the executive vice president of Sheldon Gross Realty.