The latest buzz amongst my broker colleagues is that when the office market is sagging, tenants should sign longer term leases to take advantage of the savings. I have been thinking about that and ran some financial analysis to see if this is truly good advice.
My conclusion – it has the potential to be misguided counsel. I took a simple approach in my financial analysis. My research department supplied with me a historical graph of asking rental rates for Miami-Dade County from 2002 thru 2009. Keep in mind that these are asking rates and not the actual rental rates within most lease transactions.
I made myself crazy looking at various scenarios and trying to see what is the best advice to offer my clients. After a couple of days of pondering the data, running the various analyses, pondering the data some more, it all came to me. Actually it came to me as I was writing this article. The answer is: every situation is different. Each and every lease I negotiate is different with specific criteria, so each time I create a unique solution to fit that client’s distinctive needs.
There are situations that warrant a 7 – 10 year lease term. A couple of examples are if the tenant requires above building-standard improvements or when location is so key to their business that they need to lock it in for as long as possible. I have negotiated other complex instances where a long lease makes sense. The cynics amongst us will say that brokers want longer term leases in order to earn a larger commission. I have seen instances of this, however, if you are utilizing an ethical commercial real estate broker (that is not an oxymoron), that broker will do what is best for you first and foremost.
What is the best solution for your company? Contact me today for a free lease analysis.
