Commercial real estate owners and property managers are seeing a shift in the balance of negotiating power to tenants as rental markets dry up due to the economic downturn. To combat rising vacancy rates and weak to no rent growth owners will be in heavy competition with each other in seeking ways to attract and hold viable tenants.
“We expect that many lessors of commercial office space will re-examine their policies relating to rental packages as they weigh the advantages of lower profits versus no profits or a loss,” says Mark Bassil, vice president and co-founder of MAiSPACE, a modular office furniture manufacturer based in Mt. Olive, NJ. “One of the ways they can increase their competitive advantage is to offer fully furnished workspaces regardless of the amount of floor space being leased. Traditionally,” Bassil explains, “landlords were not interested in furnishing spaces under 50,000 square feet, and if pressured to do so would make it uneconomically attractive in terms of increased rental costs. This effectively put the tenant in charge of furnishing the space.”
Today’s modular office furniture systems from manufacturers such as MAiSPACE combined with attractive lease packages present a strong case for landlords to relax their position on furnishing leased space. “Landlords may also be able to take advantage of substantial tax benefits under Section 179 of the Economic Stimulus Act, and may qualify for lower real estate taxes,” Bassil says, adding that “building owners should fully discuss tax issues with their accountants.”