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WHERE DO YOU STAND ON CONCESSIONS?

The problems in the economy and housing markets are having a ripple effect, and many landlords with office space are starting to feel the squeeze as companies downsize and look to save money. The majority of this week’s poll respondents (43%) admit that although they haven’t had to give too many concessions to keep tenants in their buildings, holding out is becoming difficult. Slightly fewer (37%) concede that tenants have the landlords where they want them. Only 20% maintain a cavalier attitude—We don’t need concessions! Marc Rosenberg, executive vice president in Cushman & Wakefield’s Morristown office has seen economic downturns before, so landlords ceding ground to their tenants is hardly surprising. Here’s what he has to say:

“There’s no doubt that concessions are increasing. They’ve made a comeback recently. A few years ago, when the economy went through a slowdown, concessions came about, and then they went away over the past three or four years. With what’s going on now in the housing and financial markets and the increasing price of gasoline, people are definitely more concerned about their spending.

“Most of the prudent tenants are looking at where the economy is now and are looking to save money. Some of them are going back to their landlords early, maybe a year and a half or two years before the leases are up, and trying to restructure the leases now in order to take advantage of some of the concerns in the market. Landlords don’t want to drop the face rent because that’s how they finance the building, so they give concessions to work out an effective deal with the tenant. Landlords don’t want to just drop the rent to a lower rate in order to get a tenant to sign an extension, so they may instead just give the tenant free rent for a while, maybe a few months.

“Free rent is a common concession, and some landlords also give tenants money to fix up the space a little bit. Some tenants can also negotiate a new base year to realize some savings. So, there are three concessions landlords tend to give: free rent, work order money and base year. The key thing for landlords is not to touch the face rent or touch it as little as possible.”

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