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Over the past year or two, institutional owners have experienced increased vacancies throughout their portfolios. The recession, reduced tenant demand and oversupply of new product have caused a glut of vacant industrial space, even in markets that have performed well through downturns in the economy. The results are pressure on owners’ returns and the opportunity for industrial tenants of size and credit to negotiate based upon the owners’ cash flow and not on market. In a challenged economic environment, this is a more natural way to develop a lease structure.

Large industrial users in particular have benefited from this approach as they recognize the relationship between a long-term lease for the owner and reduced occupancy costs for the tenant. Proactive owners of large industrial space are recognizing the risks they face as tenants that are approaching lease expiration begin to evaluate moves to newer, more functional facilities, often for lease at rates below the rates being paid for older, less functional facilities at the back end of their lease terms.

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