It’s been said before, and it’s true. Timing is everything! With your office lease, as with everything else, you have to be in the right place at the right time. Sometimes it’s mere chance that puts you there. But research and planning can help.
Commercial office markets are cyclical, on both the “macro” and “micro” levels. “Macro” refers to the economy as a whole, “micro” to a specific location. Commercial office developers build when commercial bankers lend.
Commercial real estate cycles have three phases: beginning, peak, and end. If you want to know where the market is at any point in time, listen to business news on television and read newspapers. The market is always one phase ahead of where the media reports it to be.
Note: The office tenant should strive to negotiate or renegotiate their lease at the beginning or end of a cycle, and never in the peak.
Here are some characteristics of each phase:
There is a lot of pent-up demand. Business has been slow. Companies that have been consolidating are planning growth strategies. Vacancy rates and inventory levels are relatively low and stable. Interest rates have been steady, and are also relatively low. Optimism is increasing in the community. Prices are steady. Office tenants begin to enter the market. Rumors of new deals spread.
The initial burst of office leasing activity has absorbed most of the inventory existing at the start. Newspapers begin to report about the deals that were made. Developers take on lots of debt and race to meet demand. Land deals are made like crazy. Buildings spring up overnight.
By now, the news media is reporting regularly on all the land deals that were made. Even bank economists feel safe in predicting a strong market. Construction continues, but at a slower pace as supply outpaces demand. People begin talking about a slowdown. Prices soften in response to decreased demand. Landlords become a lot easier to deal with.
At Golden Group Real Estate, we specialize in tenant representation real estate services for office space users in the Chicago area, helping local business owners find office space and negotiate lease and purchase agreements. We never represent landlords, so we are prepared to negotiate aggressively on behalf of our tenant clients.
For more on Golden Group Real Estate, read about our real estate services. Let us know if we can help you find office space for rent or buildings for sale. Call us at (630) 805-2463, email us at [email protected].