Tenants Take Advantage of Recession to Renegotiate Leases, Find Better Deals
Many South Florida businesses are taking advantage of the commercial real estate market’s decline to renegotiate their leases or to find better deals elsewhere. For savvy office, industrial, and retail tenants, the recession is providing a significant economic boost.
“We're certainly in an environment where the tenants are more in control,” says Peter Reed, a principal at Commercial Florida Realty Services, a brokerage in Boca Raton, Fla.
Slumping demand in the second quarter is pushing down rental rates and increasing vacancies, pressuring property owners to offer greater concessions, such as two months’ free rent and money for tenants to upgrade their spaces. Tenants renegotiating leases and staying put are using a strategy known as “blend and extend,” where they reduce space while agreeing to add years to their leases, typically at a lower price per square foot.
“Landlords are getting hammered in some deals, but it beats the alternative—increased vacancy,” says Jonathan Kingsley, managing director for Grubb & Ellis Co.’s Boca Raton office.
Tenants who previously couldn’t afford the best space now are testing the market to get into an attractive property they otherwise couldn’t afford.