Seize the Day
Seize the Deal
With greater than 50% of Chicagoland’s workforce inoculated and schools expected to resume in-person attendance this fall, pent-up office demand is resulting in an increased number of space tours; yet getting to the finish line is proving to be challenging, particularly in the Central Business District (CBD) and certain outposts throughout the suburban market.
Tenants willing to commit to new office space are looking to find value coupled with flexibility. They know this is a moment in time where they can demand more flexible terms than they could in the past. Correspondingly, landlords need to be nimble to satisfy the tenants who want space today and do not want to wait until tomorrow. Both sides need clear objectives and a winning strategy before they go to the negotiation table. In the end, the goal is not only to secure a space commitment, but to create a lasting relationship between the parties involved.
There is no better time than today to secure the future of your business. The following sections outline the points that tenants and landlords should consider as they navigate the space acquisition/disposition process in today’s office market.
1. Options
To protect the business’s future growth or reduction in its workforce, include early termination, expansion/contraction, and renewal options.
2. Concessions
Market abatement (free rent) and tenant improvement (TI) dollars plus a furniture allowance.
3. Building Space & Considerations
- How does the firm access its unit?
Elevator or stairs? A private or shared entrance? - Now more than ever, companies want to use their offices to promote their brands, onboarding, and culture. Make sure a building offers the right mix of amenities to satisfy these goals: onsite restaurant/dining options, fitness center, conference facilities, low car-to-parking-space ratio, access to public transportation and/or highways, etc.
- Does the HVAC system utilize effective filtering systems?
- If a firm is adapting a hybrid work schedule for its employees, can a business still offer its staff dedicated work areas, or will they need to incorporate the hoteling model to allow for large conference and collaborative settings?
4. Lesson Learned
During this moment in time, tenants may either be hesitant to commit or, conversely, require an office ready for immediate occupancy. Owners need to be nimble to navigate the leasing process and set expectations without losing the deal at hand. Here are some thoughts to get tenants to the finish line:
1. Be Aggressive
With so many space options potentially at the tenants’ disposal, make sure the property can make it to the final selection round by coming out of the gate with aggressive terms.
2. Be Prepared
To avoid delays, create a standing project team with resources at the ready. Tenants who do not know how they want to configure their offices in the post-Covid era may lean on the landlord for guidance. Here is the property owners’ opportunity to ease their new clients’ anxieties with definitive solutions delivered seamlessly.
- Create a Landlord Project Management Team. The lineup includes representatives from the leasing group, property management, a dedicated general contractor, and an architect. This team can be consulted during negotiations and deployed immediately upon lease signing.
- Provide multiple, flexible layout templates. Keep options manageable. Have a construction team ready to work with buildout materials (drywall, carpet, furniture systems) on hand.
3. Make Improvements
Make overall capital improvements to enhance the building experience:
- Update the lobby
- Improve air infiltration systems
- Offer on-site amenities like a restaurant, fitness center, and conference facilities
- Provide secure and resilient internet infrastructure for cabling, power, and safety measures
4. Be Open-Minded
During negotiations, be open to the non-traditional:
- Offer furnished suites to compete with plug-and-play subleases and furnished spec suites
- Allow term flexibility with larger concessions in exchange for longer-term commitments
5. Hold Firm
However:
- Increase lease guaranty if there is a concern about a tenant’s ability to pay rent. Conversely, a tenant with excellent credit or a willingness to provide more guaranty/security may do so in return for higher concessions.
- Protect the building’s tax liability through incorporating triple net rates, especially in Cook County.
- Require tenants to carry business interruption insurance to ensure tenants still pay their rents despite their income streams disrupted.