Landlords will be flexible with overall lease terms includingrental rates in a challenging market; however, there are certainrental rate parameters that landlords must strive to maintain, asit relates to the overall value of the asset as well as landlord'sability to sustain building services for both existing and newtenants, says locally based Greg Barkan, first vice president of CBRichard Ellis. "Aggregate rental rates could be discounted andpositioned in a way to afford tenants the benefit of reduced ratesin the beginning of the term, while providing the landlord with anaverage rate and growth over the term that is conducive for theasset," he tells GlobeSt.com.

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Barkan adds that he is not aware of landlords cutting outamenities or building services in order to come down on price. "Thelandlords that we represent have not taken that approach, in fact,they have been constantly revisiting potential ways to addamenities to enhance leasing efforts and attract new tenants," hesays.

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But what a select group of landlords are willing to do--forcreditworthy tenants only--is to structure transactions thatinclude moving and tenant improvement allowances. "Some componentsof the moving allowance consist of cabling and furniture systemsinstallation in addition to the costs associated with the physicalmove of the tenant," Barkan says. "Rent abatement packages couldalso be structured in a way that would either offset or partiallymitigate existing lease obligations.

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But what about smaller tenants--do the same criteria apply? "Wewant to see the tenant's financials if we are doing work," saysKristine B. Hurlbut, senior vice president of leasing at DenholtzAssociates, which handles tenants in the 3,000-square-foot range."But if we are not doing any tenant improvement work, or if there'sminimal work involved, we will sometimes take our chances." Sheadds that rents are down around 15% from 2005-2006 highs. "Backthen, free rent was unheard of. But now, we need to be moreflexible, which might involve taking a lower rent for tenants whorenew or keeping the rent stable for those who opt for a short-termrenewal."

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Denholtz is also downsizing tenants early. "I'd rather takespace back and lease it to somebody else rather than just reduce atenant's rent. If I reduce their space by 40%, I can also reducethe rent by 40% and then we both win," says Hurlbut. Still, shecontinues, there are TI packages that are simply too big. "Werecently had a tenant who wanted a 10-year renewal--we usually dothree- to five-years--and a TI package; it just got too rich forus," she says, adding that the company is also giving more freerent up front in order to keep the base rent higher."

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Meanwhile, Sudler Property Management has taken an extremelyaggressive approach to lease up One Continental, its five-story,500,000-square-foot, class A office building in Cranbury. Rentshere are $4.95 a square foot and the firm is also offering turnkeywork letters. "Each floorplate is around 100,000 square feet, so weare targeting a large user like an insurance processing company,"says Steven Spinweber, executive vice president of leasing. Whilethe company has had "a good deal of interest, nobody's pulled thetrigger yet." Although tenants are trying to capitalize on thismarket, "the decision-makers are also concerned about biting down abig chunk of space when they feel unsure about the economy," headds.

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Spinweber believes we will start to see concessions moderatethis year, but it will ultimately depend on the building. "If youhave a space that divides into 2,500-square-foot units then youdon't need to give as many concessions," he says. "But in ourcase--when we are asking somebody to look hard at half a millionsquare feet for 10 years--we need to be more aggressive." He addsthat it's easier to dig deep for your tenants if there's nomortgage on the building. "We are also somewhat leverage adverse.And we do not use much financing. Most of the time we are lookingto pay off debt and hold the buildings."

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Still, New Jersey is a cakewalk compared to Florida and Georgia,where Denholtz is also in charge of leasing up properties. "InOrlando we're not even kicking out tenants who want to gomonth-to-month," says Hurlbut. "We'd rather have the income now."She also explains that the commission structure has increased inthe Sunshine State, with brokers upping from 4% to 5%. "Tampa, FLand Tallahassee, FL are okay," says Hurlbut, "but suburban Atlantaproperty is dead. And in Downtown Atlanta, we are fighting fordeals."

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The upside of all this may be that landlords are more focused oncustomer service than ever before. "If it's just about theeconomics, you lose. But if it's about more then you have afighting chance," says Hurlbut. "Tenants can get cheap renteverywhere, but you have to be the prettiest show in town." Shepredicts that 2010 will be more of the same in terms ofconcessions. "By 2011, the packages will start to decrease, and in2011 we might see some increase in base rents." But, like most realestate-related indicators, it all hinges on job growth.

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