Starboard Commercial Real Estate

Hans Hansson | February 2, 2009

When I entered the commercial real estate business back in 1984, I entered the market just as it was collapsing. My very first offer that I made for a client was at $52.00 at a time when the office vacancy rates were in the low single digits. In one year the market crashed and not only rates tumbled but large blocks of space created for large institutional users were left vacant; and, floor plates that did not work for the smaller independent firms were left to make a deal during this market cycle.

Today I will receive this typical call. "There is so much office space out there we must be seeing a major drop in office prices." Yet the reality is if you are looking for less than 5,000 square feet the opposite is true. Yes rates are dropping slightly but the vacancy rate in this sector is still in the low single digits. Where vacancies are increasing the most are in full floor plates that housed financial institutional users. In order to divide these floors to meet a smaller market it is extremely expensive and also expensive to remove when the market turns positive again and these users come back to the market.

What was created was the "magic line". Landlords and sub-leasers that were stuck with larger floor plates would rent less space to tenants with the understanding that if they crossed the magic line they would then be charged for the additional space. Often this allows smaller firms time to enjoy space on higher floors to take advantage of better views and better overall identity for their firms. It also offers flexibility to allow growth without paying for office space until you need it. It also works great for allowing a firm that needs to downsize to stay in their existing space by working with the landlord and creating a magic line to save a tenant instead of losing a tenant all together.

For more ideas regarding how you can use the "magic line" or deal with your office space in a down market call us at 415-765-6900 we would be more than happy to help.
Posted 10 years, 7 months ago on February 2, 2009
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