Summary
Renegotiating existing leases and renewals may improve some tenant's 2010 budgets. Tenants are the beneficiaries as landlords struggle to keep occupancy status quo and work toward attracting new tenants. Area absorption rates are for the most part negative as businesses downsize and tenants move only if it is economically beneficial. The following analysis summarizes the trends in the Midwest, specifically the greater St. Louis area.
Analysis
It is not uncommon in these economic times for landlords to approach existing tenants and negotiate renewals 6 to 12 months in advance. Some of the concessions landlords are giving tenants include tenant improvements, free rent, moving allowances, caps on operating expense escalations, increased base years, rights of expansion and full commissions to the tenant broker.
In addition to concessions some landlords are also renegotiating the rent for the balance of the existing lease term as an incentive for tenants to commit to longer term renewals in advance of the current lease expiration date. It is not uncommon that in addition to a lower rent for the renewal term, some landlords are also lowering the rent on the balance remaining.
Some building owners are discounting their rents from 15% to 25% off of the building face rate.
However, landlords with no access to capital or marginal cash flow are being cautious to the extent that some have pulled vacancies off the market in an attempt to wait out the economy. In these cases, unless a tenant is willing to lease the space in an "as is" condition and the rent and lease structure covers operating and debt service, "moth-balled" space is starting to be pulled from inventories.
For some business owners, due to the lack of capital available for purchases, leasing is the most flexible and economic approach.
It remains a strong market for tenant's and buyers of all commercial property, including office, retail, industrial and multi-family.
