A large majority of commercial tenants in Orange County are expected to renegotiate or renew leases that don’t expire until as late as 2013, as reducing overhead takes precedence over moving to accommodate growth.

With an end to the recession and office rents set to bottom out in 2010, the number of businesses renewing their leases early to reduce their overhead has rapidly increased in recent months and is expected to continue to do so throughout 2010.

As businesses that signed leases in the last three years take advantage of early renewals to reduce their rent by up to 50% as a quick and easy way to slash their overhead, the resulting impact on sale values is being heaviliy surpressed in the short term.

However, with landlords finally taking a much longer term view than in recent years, offering substantial rent reductions in return for additional lease commitments from their tenants is proving a fair trade off, especially for new owners of buildings that just acquired them at cents on the dollar and have a much lower basis to work from.

Moving into 2010, tenant retention will remain key for landlords in order to combat high vacancies and maintain cash flow with the prospect of capitalizing on lease renewals in 2012 and beyond when rents are higher. Sale values are not expected to recover until aseveral months after commercial rents have stabilized in 2010 so a real resurgence in the landlord’s market is not expected until mid 2011.

The good news for tenants is that 2010 will provide them the upper hand over landlords to command the market and lock in low occupancy costs and achieve the concessions they want to significantly reduce overhead, build in flexibility with options to expand and realign their real estate with their business plan for years to come.

However, with the leasing process typically taking as long as six months to achieve the optimal results, timing is of the essence and many tenants will inevitably miss this unique opportunit if they fail to prioritize their real estate, which is typically a business’s second largest overhead.

For more information, contact Stefan Rogers at 949.263.5362.

Tags: building, business, commercial, cost, estate, growth, landlord, lease, market, negotiate, news, occupancy, office, orange county, overhead, owner, process, Real, Real Estate, recession, reduce, rent, rogers, sale, Tenant, value, Values

This entry was posted on Monday, January 12th, 2009 at 9:55 am and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.