Office tenants gain advantage amid changed market dynamics

There’s the rub: “Instead of maybe doing $15 per square foot, they can get in there for $9 or $8 or $10 because they found a landlord who has a loan coming up and they need to refinance or they need to carry their debt service or some other reason why they can’t afford to have that space empty.”

This is what gives tenants negotiating power, Thom explained, so long as the economy remains depressed: “With more office space than people need, tenants have secured negotiating power and the ability to structure leases in their favor,” Thom said. The opportunity is brought on by a mix of market conditions that is to adversely affect landlords, he summarized.

The present scenario is enough to give landlords pause, Thom suggested: “I think they have to take a deep look inside and say ‘what do I want’. If they can afford to hold out and to get terms they’re used to getting, they should, by all means, do that. But a lot of them can’t, and even your multi-million dollar properties in Manhattan and these Class A buildings, those landlords are having trouble keeping people in. When you see those big fish having to make changes and how they’re shifting their thoughts on tenants, it really starts a downward spiral to a certain point.”

Yet even with the changed dynamics, landlords retain some measure of control: “I think you’re going to see more tenants favor negotiations in the traditional office space,” Thom said. “I think your industrial and multifamily spaces and warehouse and the industrial group, landlords have a lot of control because the reality is they still need a place to live – the demand is there. But in office space, I think you’ll see landlords who are going to make changes – either more amenities, or more beneficial lease terms, or an option to reduce space, or early termination options, something like that – to really pull tenants who are hesitant or who don’t want to renew.”