Olen Monsees of B.A. Karbank and Company cut right to the chase. Given the generous supply of available space, the biggest challenge, he said wryly, “is convincing tenants that landlords aren’t willing to give away their property.”
Debora Field of Colliers Turley Martin Tucker observes the availability issue but from an opposite perspective. For her, the challenge is to convince landlords that there really aren’t enough tenants to fill their buildings. “It’s a demand issue,” says Field. Although she believes that the economy is improving, and she sees more activity in the market, she describes her sector in particular as “still very soft in terms of demand.” Greg Bates with MC Lioness Realty also questioned how to deal with tenants and tenant reps “on an economic basis that makes any sense for the owners.”
“I would probably take you back to what Debora said,” affirmed Ed Elder of Grubb & Ellis/The Winbury Group. He cited the lack of demand and the inability to see any true rental rate growth in the industry, and particularly in the office arena, as “a real issue.”
Bucky Brooks of First Scout Realty Advisors, a tenant rep firm, confirmed the availability factor. “There is little challenge for our clients in finding plenty of great options out there and good deals to cut,” Brooks said. What he sees as the real challenge is for his clients to take advantage of these deals by hiring people and expanding while the opportunity lasts.
Joyce Murray of the Zimmer Real Estate Services argued that large companies are “much smarter” than they were, say, in the 1980s, when they leased more space than they needed. Today, she believes, they are finding more and more ways to ratchet down their need for real estate. She described their use of cubes and open space as a veritable “science.” The downside, of course, for the leasing agent is that these companies require fewer square feet. “I think this is a very real trend,” Murray said.
Tom Turner discusses the abundant availability real estate funding. Joyce Murray discusses real estate trends. Bucky Brooks of First Scout Realty Advisors observes.
An additional challenge, as Kevin Nunnink of Integra Realty Resources sees it, is that the heretofore accommodating debt market is “eroding,” and he doesn’t see the rent growth in the marketplace that is going to offset the increase cost of debt. “We’ve been spoiled,” he contended.
“The high level of construction costs” adds still another challenge, according to Rick Baier of CB Richard Ellis. The costs are high, both on tenant finish work and on new development, and it is not easy, said Baier, “to understand why the costs are what they are.”
Although there is ample office space for lease, Pat Beckner of Beckner & Associates observed that “there really isn’t that much for sale in the marketplace.” Owner-users are looking for their own buildings, and they can find little that makes any economic sense. Beckner contended that such buildings are either too expensive to build or the existing properties have too much vacancy, and the numbers don’t work.
Mega Challenges
As Steve Block with Block and Company surveyed the near landscape, he saw reason for optimism. There is, after all, “plenty of money,” and the economy is getting better. What concerns Block are the kind of “outside forces” about which we have little control, like terrorism, unrest in the Middle East and other large uncertainties that have prevented companies from expanding or have caused them to slow down expansion plans.