Studley releases results of national rental survey.

The New York-based national commercial real estate firm of Julien J. Studley, Inc. recently released the findings of its 1993 National Rental Survey, which examines office rentals in twelve major markets across the country. Those cities included in the survey were Atlanta,," Baltimore, Boston, Chicago, Houston, Downtown Los Angeles, West Los Angeles, Downtown New York, Midtown New York, Philadelphia, San Francisco and Washington D.C.

The survey compares rentals on the basis of four key components: net rental, operating expenses, taxes and tenant electric, and calculates a total rental amount (net rent plus operating expenses, real estate taxes and electricity). The survey then looks at the value of concession packages and calculates the bottom line cost to the tenant (the tenant effective rental rate), and the bottom line return to the landlord (the landlord effective rental rate), in each market.

The tenant effective rental rate is defined as the total rental rate, minus the value of concessions, amortized over the term of the lease at 10 percent, (using beginning of the year payments).

The landlord effective rental rate is defined as the tenant effective rental rate minus the costs incurred by the landlord in operating expenses, real estate taxes and electricity.

"Tenants continue to have the upper hand in many markets, as effective rental rates predominately decreased over the past year," commented Jacque Ducharme, senior vice president and branch manager of Studley's Chicago office. "Only four of the twelve markets surveyed experienced an increase in tenant effective rental rates; these are Downtown New York, Midtown New York, San Francisco and Washington D.C.," he added, noting that the most significant increase took place in Washington D.C. Within the cities surveyed, tenant effective rental rates range from a low of $9.97 in Downtown Los Angeles, to a high of $30.25 in Midtown New York.

Ducharme continued, "Landlord effectives also declined in most markets, with Chicago landlords experiencing the most significant decrease." For the owner, effective rental rates range from a below break-even low of ($1.32) in Chicago, to a high of $12.90 in Washington D.C. "Midtown New York has the second-highest landlord effective rental rate, just below Washington D.C.," he observed.

Although Midtown New York has a higher total rental rate than Washington D.C., the net return to the owner in Midtown is brought down by higher operating expenses and higher concessions.

Ducharme points out that with some key markets like New York and Washington D.C. experiencing increases in rental rates, and six of the twelve markets surveyed experiencing decreases in concessions, there are indications that the tide may be beginning to turn. "This evidences increasing stability and some tightening of supply," he said.

Ducharme notes that while the current market continues to afford some of the most economic opportunities ever for tenants, the lack of new office. construction in all major markets is already causing supply to tighten. As a result, the value of concession packages has declined in many regions, and rental rates will follow: stabilizing and beginning to increase in the near future. "In most markets, tenants in 1994 will have to act quickly to lock in favorable rates and terms," Ducharme advises. "This is particularly true for tenants requiring large blocks of contiguous, Class A space, which is the first element of supply to tighten.