Southeast Suburban Submarket Highlights
According to CoStar Analytics, Office Vacancy in the Southeast Suburban submarket has decreased from 14.5% to 12.9% since 2017, as new office product has delivered and absorbed. Lease rates have remained relatively flat over the course of the last year; Full Service Gross Asking Rates are hovering near $25/SF across A and B product types.Class A product averages nearly $27/SF FSG, as legacy Class A building owners have pushed rates to catch up with new Class A deliveries, which are reaching the mid-to-high-$30s. Class B product resides at $23.50, approximately.
Major leases in new office product include Western Union, Newmont Mining, Traveler’s, Charter Communications, and Comcast, to name a few. Prime West, which developed One Belleview Station (anchored by Western Union) just sold its new AA tower, and has broken ground on the second tower of the project on Layton, which will be anchored by Newmont Mining. Large takedowns of space are creating rapid absorption of new product, similar to the Downtown Denver submarket.
The Southeast Suburban submarket represents a significant cost reduction relative to Downtown Denver, to the tune of $10-$12/SF for similar product type, not included parking, which is substantially costlier, and limited, Downtown. For companies looking for quality space at a steep discount to Downtown, the Southeast Suburban submarket has appeal, especially transit oriented locations that offer walkable amenities.
Exploring the Market
Many Tenants negotiate their own lease renewals and are usually able to obtain some concessions from their Landlords; however, in an ascending market, this can be difficult to achieve. Without the assistance of a commercial real estate advisor, Tenants usually do not fully understand the value their leases add to the building (especially when a building is being positioned to sell).
What’s at Stake
Tenants must realize that lease renewal/restructure negotiations are not basic administrative issues, rather, an opportunity to save money and strengthen competitive positions. What’s more, Tenants must be prepared to face lengthy negotiations, and go through all of the iterations of a move, especially the construction process and all of its components. The work at hand is to be performed by a commercial real estate advisor, while Tenant’s remain focused on business operations.
How to Win
Tenants should enter negotiations with clear objectives. Face rate reduction, immediate rent relief through free rent, rightsizing, fully understanding Tenant Improvement needs for updating the space or improving operational efficiency, signage or lobby identity, caps on controllable expenses, and other factors should be outlined from the beginning. If Tenants don’t know their objectives, how can they know they have achieved them? Landlords are not all created equal. It is important to understand that Landlords are real estate professionals who negotiate leases for a living. Each Landlord has different motivations. Is the Landlord a REIT, pension fund, or entrepreneurial investor? Long-term holder of assets, or value-add and exit? This all affects how we approach Landlords for concessions.
Tenants should understand the market. This means knowing where deals are getting done in comparable buildings and considering effective rates, through a combination of free rent in conjunction with face rates. Plus, what are the concessions achieved by other similar Tenants? Such as free parking, Tenant Improvement allowances (or application of unused allowances to free rent or FF&E), furniture monies, moving expense rebates, signage, renewal and expansion rights.
How We Can Help
Community First Commercial Real Estate helps clients plan, and execute, successful renewal/restructuring strategies. As an educated third-party service provider, we understand Landlord motivations, economic factors, market forces, and Landlord vulnerabilities. This knowledge, in conjunction with a thorough awareness of client business and occupancy objectives, ensures the Tenant reaps the full benefit of its tenancy, resulting in reduced fixed occupancy costs, and a competitive advantage.