TenantSee Weekly: Ice Cream on a Hot Summer Day
It’s not difficult to sell ice cream on a hot summer day. People want it because it tastes good, it’s full of sugar, it’s cold, etc. It has intrinsic appeal.
TenantSee Weekly: Got Leverage?
With the exception of premium view space, which is leasing at rates above pre-pandemic highs, many office owners in San Francisco are heading into a prolonged period when competition for tenants will be intense. There are several reasons, but let’s start with a few stats:
TenantSee Weekly: Lease Security: How Landlords Underwrite Risk
Ever wonder how landlords underwrite the financial risk of your lease transaction? Or, why many landlords prefer a letter of credit instead of a cash security deposit? The security deposit was originally conceived as a mechanism to help the landlord cover ancillary costs that come up during the term and/or upon lease expiration. Typically equal to 1 or 2 months of rent, it did not cover much. Then, somewhere along the way, an enterprising landlord with leverage got clever and decided to negotiate for more value in order to better cover what really happens when a tenant defaults.
TenantSee Weekly: Essential Math
Office markets are big boats. They don’t turn quickly. There’s always a delay between negative macro-economic events and declines in rental economics. After all, it’s not as if landlords see the negative event and decide it’s time to lower rents. No, they resist. As long as possible. This creates a gap between where everyone knows the market is heading and where it is otherwise defined by comparable lease data. We’ve written in the past about how eventually a declining market reaches a point of broad capitulation when landlords are more unified at the bottom – this is when nearly all tenants benefit from the down market simply by showing up. The challenge facing occupiers whom are negotiating at the front end of the downturn is how to capture the full benefit of a decline that has yet to fully mature.
TenantSee Weekly: 3 Reasons Why Demand for San Francisco Office Space May Remain Low
https://comms.cushwakedigital.com/rv/ff008d36d8e9840641c54f537249ac4791145879
TenantSee Weekly: Hub & Spoke: A Suburban Myth
In the early days of the pandemic there was a lot of chatter about so called “hub and spoke” real estate strategies that would cause occupiers to establish a city center hub and branch out to the suburbs with smaller satellite offices…the spokes. In the bay area, this trend has not materialized. The absence of consistent levels of demand that characterized the pre-pandemic office market has left a void for speculation. Much of the speculation comes from parties whom have a vested interest in the outcome. Suburban landlords optimistically viewed the pandemic as an opportunity for heightened demand for their product (and this may still turn out to be the case). But the truth is much of the current discussion around office demand is not informed by actual data (e.g., actions taken by tenants).
TenantSee Weekly: The Limited Value of a Handshake
People aren’t really shaking hands any more. Literally. And the figurative handshake has also seen better days, especially in the context of real estate transactions. To be sure, most office lease transactions are too complex to memorialize with a handshake. However, there’s a more practical factor at play that makes trust and commitment difficult. Specifically, until there’s a deal, there’s no deal.
TenantSee Weekly: Lacking a Common Narrative
Markets are shaped by an ever-changing interplay of influential factors; including, supply, demand, human behavior, data and a collective narrative. In times of relative stability, market participants accept a prevailing collective narrative and the markets perform with a high degree of uniformity. Take, for example, the San Francisco office market of 2019. Characterized by strong tenant demand and limited supply, this market was not difficult to understand. The narrative, while beneficial to landlords and harmful to occupiers, was supported by data and participant behavior.
