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: The Questions
We’re having the same important conversation with nearly all our clients. It stems from 2 basic questions; 1) What if we don’t have an office, and 2) Can we structure the lease so that if the market declines over the coming years, the rent for our space will similarly decline?
TenantSee Weekly: Who Stole My Narrative
Historically, the narrative within the commercial office markets in big cities has been controlled by institutions. Institutions who own the buildings and institutions who “own” the employees. The markets fluctuated between “tight” or “soft” and leverage shifted back and forth from landlord to tenant. These 2 market participants, landlord and tenant, supply and demand, called the shots. Sure, there were other variables, the economy, other market influences and influencers. But the narrative was defined within a fairly narrow range.
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: Culture and the Modern Workplace
Culture: noun: the customs, arts, social institutions, and achievements of a particular nation, people, or other social group.
We all want to be part of something great. We want our workplace culture to be worthy of its “Best Places to Work” status. But in many cases, the corporate “cultural persona” does not fully reflect the cultural reality.
Why? Firstly, leadership. Leaders tend to focus on the desired culture as opposed to the existing culture. It’s easier (and more uplifting) to identify the cultural characteristics you want, as opposed to sifting through the complexities of the culture you have. But when the aspirational culture fails to align with the existing culture, it results in an authenticity problem. However, you can’t fully blame leaders. Most companies lack the right incentives for leadership to invest in the hard work and difficult decisions necessary to bridge the gap between existing and aspirational culture. For example, achieving cultural alignment might necessitate terminating individuals who are financially productive but culturally cancerous. There could be entire groups within the company who behave in a manner that is inconsistent with the aspirational culture.
TenantSee Weekly: Stupid is Easy (and expensive)
In tenant-favorable market environments, landlords often provide more concessions to compete for tenants. Concessions come in many forms, the most obvious being, landlord funding for tenant improvements, free rent, reduced rent and more flexible lease terms. But understanding the value of the concession is not always easy, especially relating to tenant improvements, one of the biggest economic variables in leasing.
TenantSee Weekly: Equity and the Hybrid Workplace
Workplace equity is a big, important topic. The pandemic has helped advance a better discussion about how to create workplaces that are more inclusive, that support the specific and differing needs of the employee base. It’s not so much that we’ve learned our offices don’t serve all equally well, we already knew this. Instead, companies have been forced to address this reality head on because the concept of the office has been turned on its head. The act of creating equity when everyone was remote has (hopefully) built some institutional “muscle memory” that will serve us well as we embark on what’s next.
TenantSee Weekly: Where Else Can You Go?
One of the more interesting outcomes from the pandemic has been the advent of a new competitive factor for landlords to contemplate when negotiating with existing tenants; namely, the possibility of no office, either as a permanent or temporary solution. When a company is willing to let the lease expire without having secured an alternative office solution, it takes one of the landlord’s most effective “levers” out of play. As we’ve written about in prior posts, landlords are very good at using time to their advantage. Historically the closer the tenant gets to lease expiration without having fully negotiated new deal terms, the more leverage the landlord has to command better terms.
TenantSee Weekly: 3 Reasons Why Demand for San Francisco Office Space May Remain Low
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