Is the U.S. in a recession? Whether the correct answer ultimately proves to be “yes,” “no,” or “not yet,” it’s an academic issue that’s not keeping us up at night.
There’s no doubt, though, we’re entering a period of economic slowdown in the commercial real estate market caused by:
- Inflation’s impact on consumer demand and, therefore, business activity.
- The series of Federal Reserve rate increases that are increasing the cost of lending, diminishing buying power, and reducing the number of qualified buyers for commercial real estate.
With interest rates steadily climbing, we’ll likely see the commercial real estate investment markets cool off, along with more parity between office space opportunities (the sector has struggled of late) and industrial space investment activity (which has been hot for several years).
However, interest rates shouldn’t be the only factor in a CRE investment decision, of course. Location and industry-specific trends (e.g., the life sciences boom in the Denver-Boulder corridor) also help determine demand, supply, and therefore the market price of a property.
Summary
The Metro Denver area is a good place to do business. We have a healthy business environment that leads many other geographic markets with regard to commercial construction and leasing activity, thanks to the strength of certain sectors and the general influx of companies to the area from higher cost coastal business centers.
Commercial real estate leases can be lengthy and dense. Prospective tenants assume that much of the content other than the financial terms is unchangeable “boilerplate” language. When reviewing the lease, commercial tenants look hard at the numbers and simply try to understand the rest. In fact, many non-financial provisions in a commercial real estate lease are negotiable.
As a tenant representative, we obtain the best possible arrangements and terms for our clients in many respects during lease negotiations. This month we’ll focus on some of the lesser-known negotiable economic provisions in a commercial lease. Then in March we’ll explore various obscure non-economic lease provisions that can be negotiated to your advantage.
Your landlord is well-aware of these details and fine print ... and you should be too!
Certain economic considerations in a commercial lease are well-known and easy to identify. The rental rate, obviously, is a primary factor, along with provisions related to security deposits, tenant improvement allowances, and parking abatements.
But tenants shouldn’t stop there.
Summary
Over the past calendar year, economic conditions in Denver’s industrial and office markets were polar opposites.
Industrial space seemed to be snapped up nearly as quickly as it came online. It was quite the opposite in the office sector as 1.80 million net sq. ft. of space was vacated even while new properties came online.
