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Experienced prosper.

In the current real estate market, the combination of overbuilding and a strong recession makes for many unfortunate situations. The average vacancy rate across the country, and the tri-state region in particular, exceeds 20 percent. In fact, that figure does not even take into account much of the already occupied apace being underutilized by businesses which were planning ambitious expansion programs that never came to fruition.

In many cities across the nation there is enough existing vacant office space to handle all the growth requirements for the next decade. But, despite that ominous forecast, fundamental changes already underway should lead to a more stable industry in the coming years.

The process will in fact prove devastating to many and painful for almost everyone. Along the way, however, there will be opportunities for those experienced professionals who possess three important characteristics: capital, patience, 'rand guts. The nation does not need any new office development at the present time. The lack of heed for new development is based on several important factors which must be identified before beginning any development process.

First, the need for new space for a growing work force is no longer a major factor due to the massive layoffs of skilled workers in numerous industries. In fact, the lack of jobs translates directly to the rise in available space.

Second, tenants are no longer tied to one particular building for a long period of time and will not hesitate to relocate for the right price or incentive package. Loyalty has become a commodity and everything should be done to earn a tenant's allegiance.

Lastly, the availability of sublet space in existing buildings diminishes the need for new space. Sublet space is usually less expensive and the leaseholder is often willing to provide the services or amenities necessary to entice a sub-tenant. To improve today's commercial office market, prospective tenants need to feel confident that the landlord is solvent and has capable management. It is quite obviously a tenant's market and looks to remain so for quite some time - rental rates have not been this low in more than 15 years. Yet the cheapest deal is not always the best deal in the long run for either the tenant or landlord.

Therefore, positioning tenants for long-term, competitive rates in quality buildings with good management is a victory for both broker and tenant. For many landlords these days, just finding a tenant who allows you to break even is hard to find. We have enjoyed over a decade and a half relationship with Proctor & Gamble, the huge consumer products manufacturer. In fact, the company recently extended the relationship through the 90's by signing a lease for new space at one of new buildings. Why would a company of Procter & Gamble's size and financial flexibility choose to stay with one developer for more than 15 years? Because we acknowledged early on the need for developers and tenants to work together to create relationships which are beneficial for both parties.
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Title Annotation:Review & Forecast, Section V; real estate industry requires capital, patience and confidence of experienced professionals in current economic conditions
Author:Cali, Brant
Publication:Real Estate Weekly
Date:Jan 27, 1993
Previous Article:Despite some light, dark days to continue.
Next Article:New hazards in commercial leasing.

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