How Office Tenant Intel Complicates Leases

MIAMI—Tenants are smarter in the information age. So much smarter, indeed, that it's making it more difficult to get deals done.

GlobeSt.com caught up with Alan Kleber, a managing principal at Cresa South Florida, to get his take on the state of office leasing in the region. We also asked him about how smarter tenants are impacting lease negotiations in part one of this exclusive interview. Be sure to come back to this afternoon's Miami edition for part two.

GlobeSt.com: What is the state of office leasing and how has it changed over the past 12 months?

Kleber: There really are two lenses to look through in regards to the general state of the market. For urban core and suburban class A product the fundamentals are considered very healthy and vacancies continue to diminish as we bounce back from the Great Recession. as many like to call the period from 2008 to 2011.  

GlobeSt.com: What's the other lens?

Kleber: The urban and suburban class B and C product classes. These classes are under more pressure from a performance perspective and continue to lag in leasing volume.

Many ownership groups have been effective in stabilizing their rent roles and over the last 12 to 18 months and are witnessing expansion demand from their existing tenant base. This being said, there remain pockets of opportunity and volatility from a tenant's perspective as certain assets are addressing debt maturities.

GlobeSt.com: Is it easier or more difficult to get office leases done? How creative do you have to get these days?

Kleber: Unequivocally, I can state that it is more difficult to finalize leases in today's environment.

GlobeSt.com: What makes it more difficult?

Kleber: I believe there are several drivers behind this statement. The most significant of which is the level of sophistication that has increased from an occupant's perspective. Occupiers and their advisors have access to more information that impacts negotiations and the occupier's decision-making process.  

GlobeSt.com: That's true. We are in the Information Age. It's easy to tap the Internet for information.

Kleber: If you think about it, the real estate industry is one built upon the supply side of the business: equity and debt players, pension funds, asset managers, etcetera. I believe over the last decade we have witnessed to some degree a leveling of the industry as the demand side of the industry have become more educated in addressing one of its largest expense drivers.  

GlobeSt.com: And that's complicating matters...?

Kleber: The process of finalizing leases has grown to be more complex and fluid. The net result is the requirement of more time in what many would consider the grey areas of a deal where both parties can no longer impose the “we have never agreed to that” strategy. To best characterize the deal making process now, it is not a contentious horse-trading process but rather a balancing conversation in which both parties are seeking to bridge the gap of relevant and important issues.

The sophistication/experience level of the parties involved has a direct impact on the negotiation process. The more experienced tenants and landlords have a breadth of understanding that leads to a more effective process, as both parties can appreciate the others unique needs.