October 2009 Newsletter (Pp)


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October 2009 Newsletter (Pp)

  1. 1. October 2009 Robert Lowery & Rick Cagnolatti What your Office Tenants Houston’s Landlord Should Shun Tenants Rankings be Doing Market
  2. 2. Houston Rankings, Business Articles & Houston in the News Energy, medicine and a low cost of living. Houston ranked #1 Mega Market of the Year – Southern Business Development - August 2009 America's Best Hospitals - Cancer, M.D. Anderson Cancer Center - U.S News - July 2009 Highest Quality of Life Among Students - Rice University - Princeton Review - July 2009 Best City to Get Ahead - Forbes.com - June 19 2009 Top Metro in the Nation - Site Selection Magazine - March 2009 Nominal Job Growth (01/08 to 01/09) - U.S. Bureau of Labor Statistics – March 2009 Nation's Healthiest Housing Market – Bldr nd Hanley Wood Market Intelligence - Feb '09 Largest IT Service Economy - Onforce, Inc. (VoIP Monitor) – December 5, 2008 Hottest Labor Market - Bizjournals.com – September 8, 2008 Lowest Cost of Living Among Major Metro Areas - ACCRA Cost of Living Index – 3Q ‘08 Best U.S. City to Earn a Living - Forbes.com - August 18, 2008 Best City to Buy a Home - Forbes.com - July 14, 2008 Highest Population Growth in the Nation - U.S. Census Bureau - July 10, 2008 Best City to Live, Work and Play - Kiplinger's Personal Finance - July 2008 Top Local Government Green Power Purchaser - EPA- July 2008 America's Best Hospitals - Cancer, M.D. Anderson Cancer Center - U.S News - July 2008 Houston, We Have No Problems - Newsweek - June 30, 2008 Best City for Recent College Grads - Forbes.com - June 26, 2008 Best City for Your Job - BusinessWeek - June 12, 2008 Top U.S. Manufacturing Cities - Manufacturers' News Inc. - May 30, 2008 Most Accessible City for the Disabled - The National Organization on Disability – Feb '08
  3. 3. Houston ranked #2 Houston ranked #5 Houston in the spotlight America's 10 Best Undervalued Best Heart & Heart Surgery Habitat for the Houston Places to Live Hospitals - St. Lukes Episcopal Housing Market U.S. News - July 16, 2009 U.S. News - August 28, 2009 Will Holder - September 6, Best Cities for Jobs Houston Ranks Fifth for Personal 2008 Forbes.com - April 14, 2009 Income Houston, New York Has a Number of Fortune 500 Houston Business Journal - August Problem Headquarters 17, 2009 City Journal - July 16, 2008 Fortune Magazine - April 2009 Percentage Share of GDP Houston doesn't have a Fastest Job Growth New York Times - July 09, 2009 problem (01/08 to 01/09) - U.S. Bureau of Chicago Tribune - June 23, Labor Statistics - March 4, 2009 Houston ranked #6 2008 Nation's Top Export Markets Where the Jobs Are - Ft. Bend Houston's Pipelines of U.S. Department of Commerce - July County Prosperity 14, 2008 CNNMoney.com - July 19, 2009 Washington Post - June 23, Top U.S. Real Estate Investment 2008 Markets Strangulation by Decree: Houston ranked #3 Urban Land Institute - January 10, The Comeback of Best Places To Begin A Career 2008 “Planning” Forbes.com - July 16, 2009 TPPF - May 27, 2008 Metro Monitor Houston ranked #7 Lack of zoning has paid The Brookings Institution - June ‘09 America's Most Visited Museums - off for Houston North American Cities of the Houston Museum of Natural Houston Chronicle - May 27, Future Science 2008 FDI Magazine - April 2009 ForbesTraveler - March 2009 Closed case for "open" Green Jobs Best Cities for Jobs in 2008 cities Global Insight – October 2008 Forbes.com - January 10, 2008 Orange County Register - Best Cities for Young May 25, 2008 Professionals Houston ranked #9 Houston gets high marks Forbes.com - July 09, 2008 America's Best Bargain Cities - on housing affordability Nation's Most Charitable Cities Forbes.com - May 13, 2009 study Charity Navigator's 2008 Metro World's Best Places For Real HBJ - March 28, 2008 Market Charitable Analysis Study Estate Buys - Forbes.com - January Houston land policy 21, 2009 fosters homeownership Houston ranked #4 HBJ - January 18, 2008 Best And Worst Cities For High- Houston ranked #10 Neither Boom nor Bust Paying Jobs The World's Most Inventive Cities Federal Reserve Bank of Forbes.com - July 14, 2009 BusinessWeek - April 2009 Dallas - January 2008 Best Value in Private Institutions Top Ten Cities for Hispanics Regional Perspectives Rice University - Kiplinger's - Hispanic Magazine - August 2008 Rice University, Stephen L. February 2009 Top Ten Cities for Green Klineberg - November 2007 Cities Where Your Nest Egg Goes Technology Innovation Opportunity Urbanism Farthest Sustain Lane - March 2007 Joel Kotkin, Carrol Forbes.com - October 2008 Robinson, Tory Gattis - Best Big City for Business 2007 Inc.com - July 2008 Top Ten Up-and-Coming Tech Cities - Forbes.com - March 10, 2008
  4. 4. What your Landlord Should Be Doing for You
  5. 5. Have you personally met the owner? Even though the property was bought as an investment, the landlord is still in the people business and should go out of their way to meet up with lessees which can lead to longer, more meaningful dealings between parties. Also, a landlord should have a basic understanding about your business. Each tenant is different and may have unique requirements. Is the Landlord/Management proactive to maintenance requests? A long-term tenant is a valuable asset in a rental market favoring the tenant, so landlords/management should make sure they keep on top of all those minor maintenance issues which become noticeable if they pile up. • Maintain the property in the best possible condition; make sure equipment is working effectively • When the tenant reports maintenance problems, are they responding with urgency • Issues involving water, electricity, heating and air conditioning or safety should be resolved inside of 4 hours with a follow up to the tenants Do they respond courteously to inquiries? Do they show that they are fair-minded and understanding? Do they act as if you are ‘bothering’ them when you call. Are they pleasant and show concern for their needs? Do they ignore your questions or issues? Do they refresh building features annually? Landlords need to have a plan to maintain the property on an annual and rotating basis so as to provide a fresh appearance. Keeping up with some of the competing buildings will demonstrate they care about the property and the tenant will be less inclined to inquire. Amortized over time, the minor expenses don’t cost that much.
  6. 6. Are they open to modifications to your space? Requests for improvements should always be considered. Landlords should be open-minded and flexible to the tenant’s space. You can always restore the space to its prior condition. Does the Landlord/Management respect your space? When landlords meet tenants in their property, they should be respectful, friendly and informal. The landlord should avoid disparaging comments about possible future plans that are adverse to the current tenancy. Do they schedule preventative maintenance checks? Landlords perform regularly scheduled “preventative maintenance checks.” They should make sure the tenants are aware of when such events are scheduled. Performing these checks demonstrates a proactive approach as opposed to a “wait and see” and allows landlords to find issues before they escalate.. They should ask if everything is acceptable or if the you have any problems. Do they communicate effectively? Do they communicate with you on a regular and consistent basis throughout their tenancy. Do they let you know if there is a scheduled maintenance such as parking lot cleaning, so you can make arrangements. Tenants don’t mind being inconvenienced once in awhile as long as they are aware and can make the necessary arrangements. Do they invite your opinions? Professional landlord/management teams inquire as to what would make their environment better to work for the tenant. Tenants might have ideas, but don’t openly present them. Many times, it may be something really small that could make a world of difference. If it is a larger item, it may be possible for the landlord to amortize the cost in the general operating expenses, if all the tenants will benefit from the suggestions.
  7. 7. Do they send thank you notes or holiday cards? This is a simple thing that can go a long way. Landlords/Management should write notes and sign cards. Have you received a small gift during holidays or upon move in. It is small, but tenants notice. Are they improving the energy efficiency of the building? In today’s market, efficiency and sustainability are very current issues that more and more tenants are acutely aware of. If the property is inefficient, has hot spots or drafty suites, a tenant is not likely to extend their tenancy. This inefficiency can translate in higher operating costs. There are many federal programs and tax advantages to retrofits of properties that result in efficiencies and reduced operating costs. This effort is absolutely necessary. Are they maintaining the grounds? Maintaining the front entrance to the property and the common areas is an often overlooked and important tool to help retain tenants. Does the landlord plant flowers in the front of the property? Do they keep the parking lot clean and trash receptacle hidden; the grass mowed and the bushes trimmed? Making the property inviting is sometimes a subtle way to make the tenant experience more pleasurable. Will the landlord offer a renewal bonus? The easiest way to incentivize tenants to remain in the building is to offer a discount for signing a new long-term lease. Considering how much money and time it would cost the landlord to find new tenants, it is worth it. Landlords should provide incentives to tenants for signing up early, possibly with free rent, a larger tenant improvement allowance, reduction of security deposits, an offer to refresh paint or carpet during their lease term, etc. (Note: to be proactive with such a program it should start at least a year in advance of the expiration of their lease.
  8. 8. Did your landlord pass or fail? We advise you to stay where you are, unless the rent is unreasonable. In this case, we will assist you in locating a building with similar qualities. Given the economic climate, it is likely the building’s ownership will continue to neglect their building and their tenants.
  9. 9. Tenants Shun Tenants Market From a technical standpoint, the Greater Houston office market became a tenants’ market as of 2Q 2009. Vacancy is slowly climbing, rents are falling behind the scenes and landlords are looking for innovative ways to lure new tenants as well as keep the ones they have. But that doesn’t mean things are great for leasing brokers. Space is available, at some good rates with concessions, but not much is happening. The main problem is that businesses are afraid or unable to act. The first group is reluctant to commit because of uncertainty about their own prospects, combined with the difficulty of securing loans or capital to fund growth. The second group is facing cutbacks if not actual dissolution. Rather than seek new space, these tenants want to rid themselves of what they have, or at least a part of it. The result is a stalemate. Deals may be out there, but few tenants are stepping forward to take advantage. Most tenants opt to stay put rather than scout the market for the best opportunities. Tenants are in a position where they can renew their leases at better rates if they want to. Most of them choose that route, especially since landlords are willing to offer space on short-term renewals. This provides companies the chance to delay major business decisions until the economy settles enough for them to feel confident about their future.
  10. 10. Some landlords are still reluctant to face reality, particularly landlords who bought at the market’s top. They have to justify their purchase price. They’re still asking $35 [a square foot] and up in a market where it’s hard to get $25. They’re going to have to drop the rates if they’re going to get tenants. In the 80’s, Houston landlords were offering more than a year of free rent to sign a tenant. Today, you can get free rent, but there will be a sacrifice when it comes to tenant improvement dollars, especially in buildings that were purchased in the height of the commercial real estate market. Because landlords typically depend on their lenders to underwrite TI design and construction today, they are refusing to pour additional funds into buildings that are not performing well. So, look around your building. Landlords will ultimately be forced to adapt to tenant demands, even if they have to be dragged to that point. It is the consumer and commercial tenants who will dictate the plight of commercial real estate markets, not building owners, no matter how much the landlord paid for the building. The market fundamentals will always prevail over time. Tenants have significantly more clout than they realize, now and for awhile. Greater Houston has over 30 million square feet of vacant office space of which 507,000 square feet of negative absorption occurred in 2Q. Robert Lowery and Rick Cagnolatti of Coldwell Banker Commercial expect the Greater Houston area to post another 3-5% of vacant space by years end, reducing the occupancy rate to 82%. They also predict available space, via subleasing, will double to 5 million square feet by 1Q 2010.
  11. 11. Tenant Representatives… Analyze your space needs. Investigate all properties and determine which are the most appropriate for your needs. Create a bidding war amongst several landlords for your business. Protect you during lease negotiations. Identify lease provisions that may cost or save you money during your lease term. Handle paperwork. Settle disputes that arise even after the lease is signed. Ensure you get the most value from tenant improvement allowances. Win concessions that anticipate your current and future needs. *Obtain payment from the landlord for procuring you, the tenant, for their building. Robert S. “Bob” Lowery & Rick Cagnolatti Tenant Representation Team Coldwell Banker Commercial 2121 Sage Road, Suite 150 Houston TX 77056 832-275-6514 or 832-659-5355 Office: 713-840-5000