With the ever-changing landscape in the office leasing market, it makes sense for landlords to have an ever evolving 5-year plan. Generally speaking, office leases in the Albany MSA market are 3 to 5-year lease terms, often with matching length renewal options.
With corporate downsizing, company mergers, telecommuting and smaller office size requirements, there is an incredible amount of space options available to tenants. Landlords who do not recognize that fact along with those who lack the creativity to get a lease to the finish line will sadly end up with vacancies for an extended period.
While challenging to accept, landlords need to be informed that not every asset appreciates in value.
A great example of this recently occurred when a landlord client agreed to a 5-year lease at an average rental rate of $14.05 per sq. ft. plus utilities vs. his $14.75 per. sq. ft. asking rent. By comparison, he was getting $13.50 per sq. ft. plus utilities back in 1988. With increased taxes and operating expenses over the past 3 decades, his NOI is lower now than it was in the past, thus his property value is less.
So, what should this landlord do? In many cases, it is worth considering other possibilities. For instance, it might be in this landlord’s best interest to consider an exit strategy. It might be time to sell.
With the upcoming change in accounting reporting standards for lease obligations, it makes sense to consider marketing your partially vacant office building to owner occupants by showing them the advantages of owning.
Detailed calculations can be done by an experienced commercial real estate broker that demonstrate a landlord’s ROI differential between selling sooner than later at a realistic price versus holding the property with continued vacancy and rising operating expenses.
Jay Verro, CCIM
14 Corporate Woods Blvd.
Albany, NY 12211
Direct: 518-465-1400 ext:214