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Changing Commercial Real Estate Market | Twin Cities

by Chris Garcia, 3:37 PM on October 28th, 2013, No Comments

The commercial real estate market much like the stock market continues to improve.  Tenants are expanding their operation through lease expansions and building purchases.  The amount of absorption this year will be substantial.

As a result of all the positive news, the market is now aggressively changing.  We are seeing less free rent, higher rates, longer lease terms, and higher construction costs.  Below we have looked at some of the effects of the changing real estate market:

Trends of a Changing Market

Less Free Rent

It was common for the last few years to get 1 month free per term of the lease.  That has changed to ½ month per year of the term and rounded up; i.e. 5 year lease would be 3 months free.  However there are Landlords not offering any.  The amount will depend on the product type, amount of improvements, and credit of the Tenant.

Term Being Pushed

Landlords are pushing lease term.  3 and 5 year leases used to be the norm. Now it is 5 and 7 year leases.  10 and 15 year leases are not uncommon.  This trend will continue.

Rental Rates Rising

A fairly obvious trend of an improving market, Landlords are pushing the rates when they can.  Many are trying to make up for the last few years and looking for 10% increases.

Annual Bumps Increase

Annual increases are being asked up to 3-5% which is a far cry from the 2-3% which were seen from 2008-12.  Some Landlords were doing little to no annual increases, not the case any longer.

Tenant Improvements Increase

The cost to build out space is once again on the rise.  Any General Contractor will tell you that their margins were squeezed from 2008-12.  For a retro fit of an existing office, a minimum of $15 per square foot will be needed and $30 per square foot for a higher quality space (carpet tile, moving/building new offices, higher end finishes).

The real estate market, like any other continues to change.  At this point in time it is moving in the direction of the Landlord with less quality space available.  There still are subleases available and motivated Landlords as well as buildings available for sale.

Is Free Rent Dead?

by JeffMinea, 3:36 PM on November 1st, 2012, No Comments

An article appeared on the front page of the Mpls. St. Paul Business Journal recently titled: “Industrial Tenants: Say Goodbye to Free Rent”.  As a Tenant advocate, I can tell you that in 2012 that has not been the case, and I can illustrate why it won’t become the norm for awhile yet anyway.

The article quoted a 7% vacancy rate for Twin Cities industrial property, but that figure includes all single tenant facilities which increases the universe and thereby artifically lowers the vacancy rate. The true industrial vacancy rate for the Twin Cities is approximately 13.2%, with the southeast submarket reporting 16.5% vacancy (Mncar 2012 Annual Market Report). Historically, a tight market with very little free rent is one with a vacancy rate around 9-10%. With the vacancy rate dropping about 1% per year, we still have a ways to go to get to a tight market.
Now you can breath a sigh of relief! It’s still a Tenant’s market and will remain one through 2013 and beyond most likely.

In some cases, the market has tightened for some types of industrial tenants, that is, large users looking for 175,000 sf or more of bulk warehouse space. In reaction to this, Liberty Property Trust has pulled the trigger on a 227,000 square foot speculative bulk warehouse facility, and Interstate Companies has already built 200,000 square feet in South St. Paul, and has signed a lease for 50,000 square feet recently for 11 years and 12 months of gross free rent! Free rent was sure in play on that one!
So, with free rent still very much a part of transactions in the industrial sector, what about office space? The Twin Cities office vacancy rate is 16.2% (Mncar 2012 annual market report) and that means free rent will also be alive and well in that sector  for some time to come.
In either industrial of office it is safe to say that the largest requirements are going to be filled by Build-to-Suits, with examples like Sanmar purchasing land and building over 500,000 sf of industrial space in Shakopee, or United Health Group building a mega-complex in Minnetonka on the heels of completing 2 other build projects in the last 2 years. The cranes are back on the landscape and that is always a sign of prosperity!
Regardless of which party gets elected shortly, we will all need to focus on how we can improve our bottom lines, and for us, we can boost your profitability in a variety of ways in this current Tenant’s market. Clients will continue to turn to us to: address space efficiency and forecast growth, determine if they are over or under market with their rate, map out strategies to negotiate their next lease (new or renewal), and various other solutions,  and what they end up with are typical savings of 10-20% over their last rate, along with space that will be improved to carry them for the next 5 years or so.
If you have a lease expiring in the next 12-24 months, it is prime time for an evaluation of either a best lease strategy or possibly to explore a purchase of a facility. In either case, you can count on seeing a strategy and input that will best serve you and your bottom line!

If you would like a copy of my white paper, “Renewal Assistance, Benefits and Payoffs”, please let me know and I will send it over.

Thanks and I hope your business finishes strong this year!

Jeff Minea

CGC Commercial

952-955-6196

Jeff@cgccommercial.com

Lease Renewal Tips

by Chris Garcia, 8:59 PM on March 22nd, 2012, No Comments

Renewing your lease can be tricky, make sure you have done your homework and allowed yourself enough time to negotiate the best possible deal. Check out this article with some great tips:

http://www.nuwireinvestor.com/articles/negotiating-lower-rent-for-your-business-53207.aspx

4 LEASE RENEWAL STRATEGIES MADE SIMPLE

by JeffMinea, 7:06 PM on January 18th, 2012, No Comments

We all want to feel empowered in our decision making process no matter what the subject is, and when it comes to your property lease, here are 4 simple things to consider before you begin the process:

1.  ALLOW 12-18 MONTHS TO BEGIN THE PROCESS

This time allows you to maintain leverage in discussions with your Landlord. Staying tight lipped could backfire if a neighboring Tenant needs more space, or the Landlord is allowed time to talk to a new Tenant. Result: your space could be leased out from underneath you- not good! Negotiating late usually sends a message that you are a “captive prospect” and you will get less and pay more.

2. KNOW THE MARKET FOR YOUR BUILDING

Go to the listing agent’s website or www.mncar.org, or www.loopnet.com, to find out what the asking rents are currently for your building. In a soft market as we have had, the
asking rent may be less than what you are currently paying. This is a valuable piece of information as you frame your strategy for a lease negotiation.

3. KNOW THY NEIGHBOR

There’s a good chance you are in a multi-tenant building, so getting to know another business owner/executive, who ideally moved in recently (or renewed), and getting their observations about likely concessions and rental rates will help you gain additional valuable knowledge.

4. UNDERSTAND YOUR WORTH AS A TENANT

Landlords want to know how your business is doing and without sharing financial statements (yet), you should be prepared to tell your story of longevity as a business, good payment history, industry competitive rank, and growth and other outlook items of interest. The more confidence they have in you, the better the concession package will be in the end. The other item of value is whether or not you are able to sign a 5 year lease or longer. This sets up the value proposition more than any of the others in a negotiation as it gives the Landlord the most value with their lender to name one example.

SUMMARY:

The above points will provide the litmus test for what strategy is best for you. For more suggestions on how to create your best lease strategy, please feel free to contact me at:
jeff@cgccommercial.com. 952-955-6196

 

CGC Commercial hires Jeff Minea as Senior Vice President

by Chris Garcia, 9:41 AM on December 23rd, 2011, No Comments

Wayzata, MN (December 19, 2011)- CGC Commercial Real Estate Services has hired Jeff Minea as Senior Vice President.  Jeff will be focused on representing companies in the Twin Cities market with their site selection, lease renegotiation, build to suit, and consulting on real estate matters.  Minea brings with him over 28 years of experience in the Minneapolis market.

Jeff comes from Cushman and Wakefield where he was Senior Director of Brokerage Services.  In the past five years alone, he has completed 344 lease and/or sale transactions totaling more than 4.2 million sf and $104 million in consideration.  In 2007, The Minneapolis-St. Paul Business Journal recognized Minea as one of the top five industrial brokers in the Twin Cities market.  In 2010, Jeff earned a Top 5 producer award within the local office.

“We are thrilled to have Jeff join the CGC team.  He adds a tremendous amount of experience and expertise that will add value to the organization and our clients.” Chris Garcia, Principal of CGC Commercial.

About CGC Commercial

CGC Commercial is a Tenant Advisory firm located in Wayzata.  The firm focuses on helping companies relocate their office and industrial facilities as well as negotiate lease renewals, sell and purchase property, and consult on real estate
matters.  For more information please visit www.cgccommercial.com.

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