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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.

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