Where are office rents today and how much lower will they go?

Boston’s central business district has earned the unfortunate distinction as the most deflated rental market in all of the Americas¹. Combine that with a lackluster economic recovery characterized by problematic job growth will hamper the pace of any real estate market resurgence, which probably cannot gain much traction until late 2011 or 2012².

What does this mean for you and how do you capitalize on it? Landlords are working extremely hard to preserve market rents on renewals and new leases. Yes, those numbers have come down significantly, but more so then that, tenant improvement allowance (T/I) and rental concessions are two buckets that deserve far more play. When one thinks about cost of space PSF, it should be that of net effective basis. Meaning the asking price less the free rent, example a 60 month lease @ $35.00 PSF with 6 months free is $32.50. Rent abatement was not an available option for tenants 24 months ago, now it has become main stream. The amount depends on the financial viability of the tenant to perform as well the landlord’s competitiveness in the marketplace.

Tenant improvement allowance in the recent past never moved above 50% of the first years rent on a standard lease term. Now, we are seeing that number grow from 65% to 110% of the first years rent. In many cases in times past tenants would have to pay to move into their new space. Nowadays tenants are getting the benefit of turnkey deals, thus no out of pocket expense.

Why hire a broker if I plan to renew my lease? My landlord and I have a workable relationship. Your landlord profits by getting the highest rent possible from you. Until your broker creates competition with your landlord, you’re a captive Tenant exposed to paying above market.

The call to action is to seek out professional advice to assist you in these tumultuous times. To learn more about how the Boston Realty Advisors commercial leasing team can help your business, please do not hesitate to contact us. 

William H. Catlin, Jr. • Principal   
Boston Realty Advisors
715 Boylston Street • Boston MA 02116    
T 617.850.9606 • F 877.868.1672
www.bradvisors.com • wcatlin@bradvisors.com
Boston • New York

¹ Boston Business Journal – 12.1.2009

http://boston.bizjournals.com/boston/stories/2009/11/30/daily26.html

² Emerging Trends in Real Estate 2020 – PricewaterhouseCoopers

http://www.pwc.com/us/en/asset-management/real-estate/assets/2010-emerging-trends-us.pdf