WHERE DO YOU STAND ON CONCESSIONS?

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Last week's national GlobeSt.com poll addressed thesometimes-controversial issue of where landlords stand onconcessions. By the end of the week 43% of respondents said theywere standing pat, but that it was getting tough to do so. 38% ofrespondents admitted that tenants had them right where they wanted,while 19% answered that they did not need concessions. LarryRichey, a senior managing director for the state of Florida withCushman & Wakefield, spoke with GlobeSt.com to help readers geta sense of what the office market in the state of Florida is nowexperience in terms of concessions.

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"With rapidly increasing vacancy rates across the state, from10.6% at the end of 2006 to 14.3% at the end of the first quarterof 2008, concessions are beginning to be much more prevalent. Agreat deal of sublease space has been placed on the market andthere's as much as three million square feet of shadow spacestatewide. For landlords to be competitive with sublease space,concessions are becoming necessary. Of course, this varies by MSAand submarkets within any MSA.

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"We have never seen the pendulum swing so fast from a landlord'smarket to a market that's beginning to favor the tenants. Somelandlords still choose not to accept the reality, but as the yearunfolds I think more and more will find it necessary to be morecompetitive. Landlords are trying to hold the line on their askingrates, and clearly prefer to offer more tenant improvement dollarsover other concessions. However, depending on the specifics of thelease, it is now common to see free rent offered, primarily outsideof a lease term.

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"The state of Florida has eight and a half million sf of officespace under construction right now. Unless we have significantpositive absorption by the end of the year, vacancy rates are goingto increase significantly. When vacancy rates increase the way theyhave, and it appears they will continue, either lower face rates orconcessions will be the norm. We've been through these cycles manytimes in the past, and based on current data we're trending towardsa tenants' market.

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"During the first quarter of 2008, every major Florida market,including Miami, Fort Lauderdale, Palm Beach, Orlando, Tampa,Jacksonville, Fort Meyers and Naples, had significant negativeabsorption. Overall in the state there was 2.7 million sf ofnegative absorption. This is only one quarter, but you can't ignorethat type of space being vacated, coupled with eight and a halfmillion sf under construction. We need to see a return of demand.Unless we start getting some major increase in employment, we'regoing to continue in this pattern.

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"Because housing costs are declining, we have a greatavailability of labor and we are seeing many more big projectslooking at Florida than we've seen in recent years. With a littlegood fortune we could see a lot more increase in demand, which willmitigate the increase in concessions."

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