Connection Newsletter Issue 1 2010


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Connections Newsletter 1st Qtr 2010

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Connection Newsletter Issue 1 2010

  1. 1. ISSuE 1, 2010 CoNNECTIoN INsites New Year But Same Challenges The Recession May Be Lifting, But It’s a new year, and there are hints of office Market Recovery is Years Away hope regarding the economy. But there’s unfortunately no quick fix for the We’ve ended the decade of the ‘00s at working at reduced hours and with commercial real estate market. In this a low point in many ways, but have we reduced compensation. Even when the edition of Connection, we address the started a new era of growth in the ‘10s? economy improves, most companies will need for tenants to carefully assess The Dow, the housing market, and invest in jobs to backfill space before market conditions and maximize their retail spending seem to be on the rise. they expand their real estate portfolios. leverage while they still can. Yet reports of a recovery in the office sector are premature. Perhaps several Woes for Landlords and Banks. We examine opportunities for corporate Landlords continue to deal with space users in the following pieces: years premature as the commercial real estate market is expected to be the last depreciating values and tight financing. The lead story on this page focuses on Banks that have been reeling from a slow-to-recover job market and what sector to recover. construction and residential real estate this means for tenants. The fact is, a growing GNP doesn’t loan defaults are expecting more on page two, MarketTrends highlights translate into new jobs. Assuming that foreclosures from commercial properties. the long-term toll and the lingering the recession has bottomed out, job A change in ownership can mean implications of the recession. losses are expected to continue in 2010 disruption and higher costs for tenants, And GoingGreen outlines small of this year, albeit at a slower pace. and we encourage them to negotiate steps companies can take to promote Meanwhile, total office availability for “non-disturbance” agreements in sustainability without making a will likely rise throughout the year as these circumstances. big investment. companies put additional, previously on page three, in TenantTips and unused space on the market. In fact, we Caution and Action. Companies StrategiesThatSave, we suggest how forecast that it won’t be until 2013 that are generally cautious as they wait you can do more with less space vacancy and unemployment rates return for conditions to stabilize. and creative Project Management. to pre-recession levels. That’s understandable, though savvy In ClientCorner, we illustrate how organizations will be rewarded if they companies like HealthPort are taking Given these dynamics, tenants are still are proactive. advantage of market conditions in a in the driver’s seat, but their window flight to quality. of opportunity may be closing due to Landlords today are generally willing bottom-line reality. Many property to do one- or two-year extensions in At CresaPartners, we don’t like to be hope of improved market conditions. known as the bearers of bad news. owners are reaching a break-even point and can’t be stretched any further— Tenants with secure business plans and Rather, we provide our clients with leases expiring in the next three years honest, real-time market counsel. as an example, tenant improvement allowances have already dried up in should consider locking into long-term In this way, we protect your best many markets. (eight- to ten-year) leases. interests and customize solutions in good times and bad. So, as we start a new decade, tenants Roadblocks to a recovery are clear: Here’s to a healthy New Year! are advised to start a new round of Jobs. In addition to unemployment, negotiations with landlords…before underemployment continues to be a their leverage slips away. major problem, with many employees Bill Goade Chief Executive officer CresaPartners LLC
  2. 2. Office Total Available % vs. Vacant % Vacancy Rate Vacancy Rate Availability Rate Availability Rate Expected Vacancy Rate Expected Vacancy Rate 21% 21% Office Total Total Available % vs.Vacant% Office Available % vs. Vacant % 19% 19% Vacancy Rate Availability Rate Expected Vacancy Rate 19% 19% 21% 17% 17% 19% 19% 17% 17% 17% 17% 15% 15% 15% 13% 13% 13% 13% 13% 13% MARkETtrends 11% 11% 11% 9% 9% 9% 2005 1q 2005 4q 2006 3q 2007 2q 2008 1q 2008 4q 2009 3q 2005 1q 2005 1q 2005 4q 2005 4q 2006 3q 2006 3q 2007 2q 2007 2q 2008 1q 2008 1q 2008 4q 2008 4q 2009 3q 2009 3q Effects of Recession Cut Deep; Repairs Will Take Time We have been mired in our worst economic downturn a record 19% (see graph). Vacancy rates today range since the Depression, and it will be a particularly slow from a low point of 7% in NYC to 21% in Phoenix. climb back for commercial real estate. Recent reports Rental rates and valuation. Average asking rents are from CoStar Group and other sources put industry expected to reach a decade low point in 2010, with many problems in a historical perspective: markets hit with rates that have declined 20% to 50% employment. More than eight million jobs have been during the recession. Lower rents combined with higher lost since the recession started in December 2007, with cap rates have caused building valuations to decrease 85,000 jobs lost in December 2009. While statistics vary 30% to 50%. nationwide, more job losses are anticipated this year Institutional sales. After reaching a peak of $230 billion in across the board. 2007, institutional sales based on Commercial Mortgage- Leasing activity. Transaction velocity in 2009 fell to its Backed Securities plunged to $1 billion in 2009. Sales have lowest level since 2001. dropped 90% since their pre-meltdown peak. Absorption. Actual net absorption last year plummeted Looking ahead this year, conditions in many metro centers to the decade’s lowest point. of the 20 largest markets, will worsen; others will see incremental improvements. 17 posted positive negative absorption last year. In general, we can expect the market to be flat for a couple Vacancy. Total office availability, which includes vacant of years, with a full recovery not happening until excess space plus space that is marketed but not yet vacant, is office inventory is absorbed. Source: CoStar Group GoINGGreen Practice Sustainability NeWs FLAsh Without Spending Much Green NeWs FLAsh While the green movement has become mainstream in most NeWs FLAsh of corporate America, companies are still leery about making investments during a sluggish economy, and some Leadership CresaPartners in Energy and Environmental Design (LEED) projects are now on the back burner. Still, companies are discovering that they continues to can create healthier work environments—and protect their bottom line at the same time. grow, recently Some sustainability trends worth watching: opening offices With costs decreasing for many green products such as carpets and cleaning agents, more companies are using recycled, in Pittsburgh VoC-free materials. Companies are finding they can save 20%-50% through energy- and Connecticut. saving technology, natural daylight, and downsized equipment. With sustainable light bulbs, you can increase your light bulbs’ Follow CresaPartners efficiency. Turning off lights and computers when not in use commentary through our can also reduce electrical costs. blog and social media: A recycling program for paper, glass, and plastic can be simple and inexpensive to implement. Studies show that sustainable workplaces promote higher occupancy, enhance productivity, and result in fewer sick days. If you’re not already going green, select an in-house champion Boston-MA/CresaPartners/174940 and partner with a LEED Accredited Professional. Together, you 031976?v=info can chart the path that’s right for your company.
  3. 3. TENANTtips STRATEGIES The Cube Makes a Comeback THATsave The once maligned office cube hasn’t disappeared, but, as a Fewer occupants in Less Space result of economic necessity, technological advancements, As real estate is often the number two corporate and demographic changes, it is reinventing itself. Here’s why expense (following labor), companies try to optimize more companies are thinking “inside the box.” the utility of their space based on the cost per employee. economics. The need to reduce office footprint has driven The average employee today accounts for 150 to 200 SF the design of smaller but more functional workstations. in some companies, including circulation and common Today’s cubicles average 6 x 7 SF compared to the previous areas, down from the previous standard of 225 to 250 SF guideline of 8 x 8 SF. or more. Technology. New technology has enabled the design of other ways to cut costs: workstations with less depth, featuring flat screen computer Reduce office size, eliminate offices, or consolidate panels, more streamlined storage space, greater mobility for offices and staff to improve communication. chairs, and better access to natural light. Also, set aside collaborative “huddle” areas to Demographics. Given the economy and a younger work supplement smaller “personal” space. force, employees are typically not fussy about their designated Promote hoteling. This space-sharing concept is work area. A changing culture is attuned to working at home, becoming more popular, especially for employees who sharing workspaces, and communicating in wireless cafes aren’t in the office every day. In some environments, at the office. as many as 10 employees share the same space. In today’s offices, less often means more. To plan more Go virtual. With advanced wireless technology, functional and creative use of your space, contact a laptops, and smart phones, employees can be project manager at a real estate advisory firm (also see productive at home or on the road, keeping in StrategiesThatSave). touch through online meetings and video- conferencing while saving the expense of travel and conserving energy. CLIENTCorner Finding a Fiscally Healthy Solution in a Prime Location HealthPort, the nation’s largest provider of health information, serving more than 10,000 hospitals, needed to relocate its Solutions Services Division based in Northeast Columbia, South Carolina. Ideally, HealthPort wanted to move downtown, but it assumed that the cost would be prohibitive. Then HealthPort engaged CresaPartners, which conducted financial analyses and site selection in Columbia’s Central Business District (CBD). The result? A win-win solution for the company and the city: the signing of a 30,000 SF office lease in the highly desirable CBD. “We negotiated a lease in an ideal location that provides all the amenities of a pedestrian-friendly area at an economical rate that more than offsets the costs of relocation,” “With the help of CresaPartners, we were said Ronnie Cannon, principal of CresaPartners in Atlanta. able to identify several options that met our “We never thought we’d be able to move downtown,” objectives. Our new site not only fits our budget said Larry Arnold, vice president and general manager of but also provides a more efficient, culturally the Solutions Division. desirable work environment for our associates.” Today, thanks to CresaPartners, 140 employees of HealthPort – Larry Arnold, HealthPort VP and General Manager are enjoying the unexpected benefit of an upgraded workplace in a prime location. For more information, visit
  4. 4. THE TENANT’SBill of riGhts CresaPartners is guided by the industry’s only Tenant’s Bill of Rights—a clear expression of what you can and should demand of your real estate advisor. Integrity You have the right to an advisor who Creativity You have the right to expect creative does the right thing—always. solutions from an advisor who Objectivity You have the right to an advisor who understands your business and how represents your interests only and will it relates to your real estate needs. provide objectivity and full disclosure strategy You have the right to a consultative in partnership with you alone. approach that blends strategic thinking experience You have the right to an advisor with with tactical execution to deliver the experience, knowledge, and team long-term benefits. to deliver value and savings through Courage You have the right to an advisor with the a broad range of integrated services. courage and conviction to ask the tough Accountability You have the right to an advisor who questions, challenge the answers, and is accountable for producing results and make solid recommendations. providing you with timely communication Collaboration You have the right to an advisor who is and “real-time” access to data. truly collaborative...with you, with the Leverage You have the right to an advisor who team, and with the industry. can put the power back in your hands satisfaction You have the right to an enjoyable by leveraging experience and market experience, satisfied with both the results knowledge to your advantage. and the relationship with your advisor. CresaPartners | Corporate Real Estate Service Advisors MoRE THAN 125 oFFICES WoRLDWIDE | MoRE THAN 50 NoRTH AMERICAN oFFICES |