Executive office business centers are finding increased leasing activity and strong demand for their short- term lease options.
“Requests for lease terms seem to have changed over the past five to six months,” said Llew Smith, managing partner of Office Suites of Darien. “Over the past seven years, almost all of our contracts have been for one year. Recently, about half our prospects are looking for shorter-term leases, particularly three and six months.”
Smith said many of his prospects are looking for a good place while they wait and see what”™s going to happen over the next six months or a year.Â
“Because of the volatility in this current economy, there is no way of knowing what the trend in requests for lease durations will be three years from now,” said Smith.
Smith said now, as many companies look to retain their capital funds and reassess their office space strategies, the lease term flexibility offered by business centers is particularly appealing.   Â
“The biggest change in this current economy is that there are more inquiries in general and more people asking for shorter-term leases,” Smith. “About half of our recent prospects are looking for terms less than one year.”
“It”™s a bit of a recalibration of the market,” said Chris O”™Callaghan, senior director of Cushman and Wakefield located in Rye, N.Y., and specializing in both Westchester and Fairfield properties.
O”™Callaghan said in the past tenants were not as concerned with the type of space they took; they considered their space cost just a line item of what it took to run a business.
“Now that it”™s become more difficult to run a business, people are looking at it more carefully,” said O”™Callaghan. “It”™s going to be difficult for all of us, everyone”™s trying to figure out a way to unload some of their overhead and their operating expenses, which means a lot of tenants who have leased 20,000 feet in the past are now looking at 15,000.”
According to O”™Callaghan, the opportunities for tenant s are currently extremely good, especially in Fairfield.
“The difference between Westchester and Fairfield is Greenwich and Stamford rents have spiked more than Westchester County, which have never really spiked,” said O”™Callaghan. “Westchester used to be a headquarters environment. As a rule Westchester does not have as long a way to fall because it didn”™t rise as high. Greenwich rents were spiking to a point where it was unsustainable; it was so high that those rents have a long way to fall.”
“We have to do something about our taxes in New York,” said O”™Callaghan, a Rye resident. “Right over the boarder, the real estate taxes for Fairfield are half of what they are here.”
O”™Callaghan said the reason you have a lot of international money living and setting up shop in Greenwich is that, other financial pressures being equal, real estate tax remains significantly higher in Westchester.
“Greenwich is going to be Greenwich because the real estate taxes are a lot less than what they are five minutes away,” said O”™Callaghan. “You have municipal government and county government on top of it in Westchester. They both would say you don”™t need the other; I would say you don”™t need one of them. Companies have to have your area on your radar screen for relocation, and when you have the highest taxes in the country, you”™re not on the screen that often.” Location remains Westchester”™s strong suit, he said.
O”™Callaghan said the tenants who were looking at the class B space before, if their business is good, can now they have the opportunity to look at the class A.
“I think there”™s a real feeling that the market got fat and happy,” said O”™Callaghan. “There was way too much debt available, and when there”™s debt available people spend it on things that perhaps they shouldn”™t spend it on, and I think those days have changed. It”™s not just office space; they”™re renegotiating contracts with all their vendors that supply them paper, telephones, computers, it”™s just one of the facets. I think we still have some muddy waters to go.”
O”™Callaghan said the advantage is a competitive and efficient market.
“The tenants who are in the market today are saying, ”˜What do I get for a dollar?”™” said O”™Callaghan. “Now the landlords have to give them the best value they can for that dollar. Everyone has to be smarter and work harder and certainly people are not going to make as much money. Any tenant that a landlord can sign today that knows they”™ll be there tomorrow is very valuable.
According to O”™Callaghan, tenants whose leases are coming up for renewal are looking at ways in which they can negotiate with the landlord. He said that in addition to offering shorter leases landlords are also building pre-built space for tenants on the market not wanting to invest in the building process. He said that uncertainty and the inability to work at a reduced capacity are why these options have become more appealing to tenants.
“You have tenants taking less space and being more efficient and economically driven,” said O”™Callaghan. “The next couple years is going to be hand-to-hand combat; everybody”™s going to be making less money and working harder.”
According to O”™Callaghan, many tenants have become reactionary in this climate and don”™t take enough space to provide for even minor growth.
“That”™s not an effective way to do business, either,” said O”™Callaghan.
O”™Callaghan said tenants are signing on with options for getting rid of square footage rather than plans for additions, adverse to confidence and goal-oriented growth.
It”™s the nature of the beast, said O”™Callaghan. “You have tenants who see the market as too soft and landlords who don”™t think that it”™s that soft. That”™s why you don”™t have a whole lot of transactions happening.”
