Tenant Advisor Newsletter 8-2010

8/9/2019 Tenant Advisor Newsletter 8-2010

1/10

The Tenant AdvisorAug / Sept 2010

Inside this issue:

Lease Negotiations in Todays Office Market

Project Management for an Office Build-Out

The Build to Suit Lease Alternative

12 Common Office Leasing Mistakes

View the Tenant Advisor on the Web

www.coydavidson.com

Plus: How Green is Houstons Office Market?


2/10

ContentsLease Negotiations in Todays Office Market

More for the Money

Project Management for an Office Build-Out

Complete your Office Build-Out on Schedule, under Budget, with NO Surprises

The Build-to-Suit Lease Alternative

Design and Customize a New Office Facility without the Up-front CapitalExpenditures of Ownership

Common Office Leasing Mistakes

12 common mistakes Office Tenants Make

How Green is Houstons Office Market?

Houstons LEED Certified Office Buildings

All articles contained herein are the opinion of the author and not those of either Colliers Appelt Womack Inc. or Colliers International (collectively, "Colliers"). Colliers neith

endorses, sponsors nor necessary shares the opinions of the author, regardless of whether any article is posted by any employee, officer, agent, or representative o

Colliers. Colliers has not authorized or verified any statement of fact made in a article, and any such statement does not constitute a statement of fact by Colliers. Colliers

not responsible for the monitoring or filtering of this newsletter, nor does Colliers claim ownership or control over any the newsletter content


3/10

Coy Davidson

Senior Vice President

Office Services Group

Direct: 713.830.2128

[email protected]

www.coy.davidson.com

The end of summer is approaching and we are more than halfway through thethird quarter of 2010. Overall, Houston continues to be recognized as one of the

strongest metros in the U.S. for business activity, with the employment sector

adding 168,900 jobs since the beginning of the year, a marked improvement from

this time last year.

Houston recorded negative net office space absorption of 316,519 square feet in

the second quarter after posting positive absorption of 200,021 square feet in the

first quarter. Since the beginning of the 2009, Houston has recorded 3.1 million

square feet of negative office space absorption with the overall vacancy rate

increasing to 16.5% from 13.5% during the same period.

While we have not seen the same level of rental rate erosion as compared to otherparts of the country, the Houston office market has clearly shifted to the tenants

favor. Prevailing economic uncertainty is likely to continue negatively impacting

overall office leasing activity levels through the end of 2010.

The current economic climate offers tremendous opportunities for office tenants to

secure attractive leasing terms and minimize occupancy costs for several years to

come. I am pleased to provide you with a copy of the of my newsletter, which is

tailored to the corporate office space user. You can view all these articles and

other related topics on my blog The Tenant Advisor at www.coydavidson.com.

I hope you find the content informative.

About Me:

I assist corporate users and businesses with their office space and facility requirements,

identifying optimal, cost effective locations, structuring transactions and corporate real

estate strategy that compliments their business objectives.

I have over twenty years experience in commercial real estate experience specializing incorporate real estate services, tenant representation and office leasing. I practice in the

Houston office of Colliers International, a global real estate services firm and industry leader

with 480 offices worldwide.

My background includes assisting a wide variety of corporate office and industrial space

users with a focus on the Houston and Austin office markets. I have served clients in

additional U.S markets including, Dallas, San Antonio, Seattle, Phoenix, St. Louis,

Cleveland, Denver and Miami.


4/10

More for the Money

The Houston office market

has shown a recent trend of

negative absorption That

means that more space is

becoming available than is

being leased or purchased.

As a result, the law of

supply and demand is

helping to cut rental rates

and creating incentives for

building owners to offer

t e n a n t s a d d i t i o n a l

concessions. Since the

beginning of 2009 the

Houston office market has

recorded 3,188,507 square

feet of negative absorption,

while the overall vacancyrate has increased from

13.5% to 16.5%.

This has CFOs and

corporate real estate

managers looking for their

opportunity to lock-in better

long and short-term lease

deals. However, better

does not necessarily mean

significantly lower rental

rates. Since the downturn

in the Houston office sector

began in the first quarter of

2009, the erosion of rental

values at least in terms of

quoted rents has not been

all that severe. Average

quoted rents for Class A

space in the CBD are off

6.6% and just 1.9% for

suburban Class A office

projects.

I should note there is a

difference between quoted

rents and the finalnegotiated rental rates. The

gap between initial quoted

rents and where deals are

getting signed is certainly

bigger than it was 18

months ago. In fact one of

the first indicators the office

market is improving will be

when we begin to see

substantial compression in

the gap between quoted

and actual rental rates.

The biggest difference

today in terms of the overall

flexibility in the latitude of

negotiations by building

owners is reflected in other

leasing incentives such as:

Free Rent

Tenant Improvement

Allowances

Abated Parking

ChargesParticularly for tenants with

solid credit, a Landlord is

much more willing to offer

attractive incentives that

don't diminish the face

rental rate as severely,

which helps preserve the

future market value of the

asset. This is trade off for

the Landlord, up-front free

rent periods and liberal

t e n a n t i m p ro v e m e n t

allowances impact the

building cash flow today,

but maintains a higher cash

flow later in the lease when

the building owner is more

likely to sell or refinance the

asset.

For the Houston office

tenant who is more

concerned about the overall

occupancy cost of the

lease, the opportunity to

negotiate more free rent,abated parking charges, as

well as tenant improvement

allowances that provide for

a turn-key build-out or

upgraded premises rather

than focusing too much on

the rental rate, is the

effective negotiation today.

Depending on when you

signed your last lease, you

might expect a lower rental

rate, but the real cost

saving opportunity is theother concessions. I should

note that some landlords

are not in a cash surplus

position, so a big tenant

work-letter is difficult to

obtain. In these cases the

concession to focus on

should be on free rent.

Locking in Long-term

Companies who are

comfortable making a

longer term commitment

also have the opportunity to

lock into lower rates for a

longer term. In todays

market conditions building

owners are more willing to

fix face rental rates for

either a longer period or

with less severe rental ad-

justments throughout the

lease term.

Lease Negot ia t ions in Todays Of f ice Mark et

Page 4

The Tenant Advisor

The biggest differencetoday in terms ofoverall flexibility in thelatitude of negotiationstoday by building

owners is reflected inleasing incentivessuch as: free rent,tenant improvementallowances and abated

parking.


5/10

By: Bart Morey

Youve got a project coming

up that involves that whole

design and construction

process thing. And when you

start thinking about it, the

process doesnt seem all thatoverwhelming? Weve all run

projects of one size or

another; from installing a

door knob to remodeling a

house. Some of us have

even managed fa i r l y

complicated adventures. And

they all get built. Sometimes

they dont turn out exactly the

way we imagined. Some of

them took a little more time

than we expected. And most

of them cost more than we

originally anticipated. Sound

familiar? The role of Project

Management is to improve

this process and insure the

right product is delivered on

schedule and under budget.

Bringing on a Project

Manager at the onset of the

process will establish project

goals, define realistic task

durations, and establish an

all inclusive project budget.

During the Consultant and

Contractor selection phases,

well defined goals will clarify

expectations and maximize

the competitive bid process.

Interviewing prospective

team members affords the

Tenant the opportunity to

acquire a sense of who has

the best understanding of

Tenants needs. In todays

competitive market, serious

bidders can get to the low

number. The decision

frequently hinges on the

quality of personnel. A

qualified Project Manager

orchestrates this process to

discern accurate information

so the Tenant can make

informed and intelligentdecisions.

So now youve made the

decision to hire a Project

Manager but what do you

base your decision on? At

the end of an interview with a

qualified candidate, the

Tenant should have a clear

and detailed understanding

of how the PM is going to

manage the design and

construction process. Their

presentation should addressthe following:

Details and examples on how

the competitive bid process

is going to be presented.

Methodology to

documentation and

follow-up on critical

project issues.

Problem solving

philosophy

Regularly scheduled

reporting tools

Communication

Look for someone who is not

going to push paper from oneteam member to the next. If

their idea of problem

resolution is to pick up the

phone and blame someone,

run away. The PM should

direct a consensus driven

partnering effort to achieve

the projects goals.

So the last question is how

does the Tenant afford

Project Management? Well

the fact of the matter is how

can a Tenant not afford to

hire a PM. Fees usually

range from 2% to 5% of

project cost.

1. If the PM cant save his

fee in the process, then

the PM selection

process was flawed.

2. Utilizing a PM insures an

expedited schedule to

minimize disruption to

the Tenant.

3. Having a PM on board

allows the Tenant to

remain focused on their

business.

The design and construction

process is not complicated.

But it does have a lot of

moving parts which need to

be effectively managed.

Utilizing a competent Project

Management professional

insures that this process is

completed on schedule,under budget, with NO

surprises.

Project Management for an Off ice Bui ld-Out

Page 5

The Tenant Advisor

Bart Morey is Vice President of Project Management in the Houston office ofColliers International. Bart has been directly responsible for the projectmanagement of approximately 4.24 million square feet of commercial projectstotaling over $236 million in value while also working on behalf of the owner anddirecting projects encompassing over 4.4 million square feet worth approximately$170 million. His educational background includes a Bachelor of Science in CivilEngineering and a Master of Civil Engineering from Rice University.

Utilizing a competentProject Management

professional insures thatthe build-out process iscompleted on schedule,under budget, with NOsurprises.


6/10

Why Should You Consider

a Build-to-Suit ?

In order for a business to

satisfy its office space

requirements they have

basically four options:

1. Lease or sublease

space;

2. Acquire an existing

building and renovate;

3. Build and own your own

facility; or

4. A build-to-suit-to-lease.

The build-to-suit-to-lease is

an alternative that allows the

user/tenant to design and

customize a new facility to

meet the enterprises unique

space needs without thelarge up-front capital

expenditure that comes with

building and owning. In a

b u i l d - t o - s u i t - t o - l e a s e

arrangement, a company

selects a real estate

developer to design and build

a customized facility on a

preferred site and then

leases it from the developer.

Under this structure, the user

never owns the facility.

A build-to-suit can offerseveral advantages to the

company whose current

space no longer ideally

meets their objectives. It

allows the tenant to expand

the realm of optimal location

choices and maximum space

efficiency, since the facility is

designed specifically for the

tenant. New construction

allows a developer to

incorporate the most recent

cos t -e f f ec t i v e ene rgy

systems in the project,

incorporate state of the art

technology and construction

materials with the goal of

operating efficiency. The

building can be designed to

project the company's image,

attract and retain employees

as well as enhance

productivity and logistics.

These key objectives can

sometimes be challenging in

varying degrees, when

leasing or renovating an

existing facility.

Long Term Solution

A build-to-suit is not a short

term occupancy solution. A

long-term lease commitment

is necessary for the

developer / owner to acquire

financing and the tenants

creditworthiness must be

acceptable to lenders to

obtain favorable financing

terms. The build-to-suit

process is lengthy and maytake several years to

complete. Once the build-to-

suit decision is made and a

developer/owner is selected;

a transaction has to be

finalized which is inherently

more complicated since there

is a lease and complex

construction component

beyond your typical office

build-out. In addition, the

preferred land site has to be

acquired and the building has

to be designed and built.

Evaluating All Your Space

Options

Build-to-suits are generally

considered more expensive

than leasing existing (vacant)

space, particularly in todays

market where vacancy rates

have risen and building

owners are aggressively

court ing tenants with

attractive leasing terms and

concessions. However, the

difference may be offset in

the long-term by savings in

space efficiency, reduced

opera t i ng cos t s and

improved company image.

When considering new

construction, in some

instances particularly for very

large corporations, the user

may have better borrowing

power or a lower cost of

capital than the developer.

So it would seem owning thebuilding yourself would be

more cost e f fec t i ve .

However, for most compa-

nies real estate is not their

core business and they

choose to allocate their

investment capital to other

strategic operating initiatives

that offer a higher rate of

return on their investment.

For every company each of

the four occupancy strategies

has its own merits anddisadvantages. A prudent

b u s i n e s s o w n e r o r

management team will

evaluate each option with

their real estate advisors to

determine which alternative

best suits their needs. In

some cases some of these

options may not be a realistic

or viable strategy. However,

for the company desiring a

building designed specifically

for their unique needs, the

build to suit lease model

offers a new, customized

facility without the significant

capital expenditure of

building and owning your

space.

The Bui ld to Sui t Lease Al ternat ive

Page 6

The Tenant Advisor

The build-to-suit leaseis an alternative thatallows the user tenant todesign and customizeand new facility to meetthe enterprises uniquespace needs without thelarge up-front capitalexpenditures that comesfrom building andowning.


7/10

Leasing office space for yourcompany is a complexprocess and a significantfinancial commitment. Hereare the 12 most commonmistakes made by tenantswhen securing office spacefor their business needs:

1. Beginning thenegotiation of a renewalor new lease too late

2. Lacking clearly definedbusiness or real estateobjectives

3. Focusing exclusively on

financial costs4. Failing to appoint a

project leader as theinternal single point ofcontact

5. Making inaccurateestimations of thecompanys spacerequirements

6. Failing to leave enoughtime at the end of thelease to fulfill makegood obligations

7. Acting to slowly once adecision is made, andconsequently missingout on opportunities

8. Agreeing to terms prior

to obtaining a spaceplanning perspective

9. Failing to allow forexpansion space

10. Paying too little attentionto exit strategy andlease flexibility whennegotiating the lease

11. Lacking the knowledgeof future opportunities;often, the best deals aresecured well in advanceof the space becomingavailable

12. Failing to assemble theentire integrated projectteam; broker, architect,contractor and legalcounsel

12 Common Off ice Leasing Mistakes

LEED certification you will

notice many projects that

were either developed by

Hines or are currently

managed by the Houston

based developer. Theseinclude some of Houston

most high profile office

projects such as Chase

Tower, Bank of America

Center and Williams Tower

as well as the newest

"Green" office project, Main

Place which is very near

completion.

What is LEED?

LEED is an internationally

recognized green building

c e r t i f i c a t i o n s y s t e m ,

developed by the U.S. Green

Building Council (USGBC)

which provides third-party

verification that a building

was designed and built using

strategies aimed at improving

performance across all themetrics that matter most:

energy savings, water

efficiency, CO2 emissions

reduction, improved indoor

environmental quality, and

stewardship of resources and

sensitivity to their impacts.

There are four levels of

certification:

1. LEED Certified 26 - 32

points

2. Silver Level 33 - 38

points

3. Gold Level 39 - 51

points

4. Platinum Level 52+

points (69 possible)

A completed list of Houstons

LEED Certif ied Office

Buildings follows on page 8

and 9.

How Green is Houstons Of f ice Market?

Recently I came across an

article on-line that reported

the city of Miami was getting

its first new LEED Certified

Office Building, which

seemed kind of surprising

since there have been many

office buildings in the

Houston market that have

attained some level of LEEDcertification.

Why does Houston have its

fair share of LEED certified

office projects? One of the

world's leaders in sustainable

office development and

ownership has been Houston

based Hines. When you scan

the list of office buildings in

Houston that have attained

Houston has over 50LEED Certified officebuildings, includingsome of the citys most

high profile officeprojects

Page 7

The Tenant Advisor


8/10

Houston: LEED Cert i f ied Off ice Bui ld ings

Page 8

The Tenant Advisor

Building Name Address Class Submarket Square Feet

Chase Tower 600 Travis St A Central Business District 1,683,893

First City Tower 1001 Fannin St A Central Business District 1,333,312

Bank of America Center 700 Louisiana St A Central Business District 1,268,480

1100 Louisiana 1100 Louisiana St A Central Business District 1,265,332

One Shell Plaza 910 Louisiana St A Central Business District 1,226,276

CenterPoint Energy 1111 Louisiana St A Central Business District 1,079,524

Main Place 811 Main St. A Central Business District 972,474

Hines 717 Texas 717 Texas Ave A Central Business District 696,228

5 Houston Center 1401 McKinney St A Central Business District 580,875

Two Shell Plaza 777 Walker St A Central Business District 565,938919 Milam 919 Milam St B Central Business District 542,919

Chase Bank Bellaire 6330 W Loop Fwy S B Bellaire 293,798

SpawGlass Corporate Offices 13800 West Rd B FM 1960 / Hwy 249 19,874

Williams Tower 2800 Post Oak Blvd A Galleria / Uptown 1,476,973

1800 West Loop South 1800 W Loop South A Galleria / Uptown 399,777

2000 St. James 2000 St James Pl B Galleria / Uptown 335,027

Five Greenspoint 17001 Northchase Dr A Greenspoint / North Belt 451,748

Four Greenspoint Plaza 16945 Northchase Dr A Greenspoint / North Belt 403,384

Two Greenspoint Plaza 16825 Northchase Dr A Greenspoint / North Belt 348,768

Three Greenspoint Plaza 233 Benmar Dr A Greenspoint/ North Belt 253,562

One Greenspoint Plaza 16855 Northchase Dr A Greenspoint / North Belt 223,159

Green Bank Greenbriar Branch 4000 Greenbriar Dr B Greenway Plaza 20,000

Cemex Center 920 Memorial City Way A Katy Freeway East 336,000

Gulf States Toyota - Enclave Campus 1345 Enclave Pky A Katy Freeway West 466,318

Helios Plaza 201 Helios Way A Katy Freeway West 390,000

Eldridge Oaks Phase 1 1080 Eldridge Pky A Katy Freeway West 350,000

The Plaza at Enclave 1254 Enclave Pky A Katy Freeway West 343,541

Trammell Crow Energy Center Phase 1 585 N Dairy Ashford A Katy Freeway West 332,000

Energy Center II 575 N Dairy Ashford A Katy Freeway West 305,585

Three Eldridge Place 737 Eldridge Pky A Katy Freeway West 305,528

Sysco-Phase I 1370 Enclave Pky A Katy Freeway West 300,000

Sysco - Phase II 1390 Enclave Pky A Katy Freeway West 300,000

SHELL WOODCREEK PHASE 1 150 N Dairy Ashford Rd B Katy Freeway West 170,000

Boeing 3700 Bay Area Blvd B NASA / Clear Lake 399,008


9/10

Request Market Research

Page 9

The Tenant Advisor

Building Name Address Class Submarket Square Feet

Kirksey Office Building 6909 Portwest Dr B North Loop West 24,000

Westway II - GE Oil & Gas 4424 W Sam Houston Pky N A Northwest Far 250,000

DNA Westway III 4425 Westway Park Blvd A Northwest Far 181,814

Beltway Lakes Phase I 5825 N Sam Houston Pky W A Northwest Far 163,436

Phase Two 5875 N Sam Houston Pky W A Northwest Far 162,416

Intellicenter-Houston 4650 Westway Park Blvd B Northwest Far 158,518

Westway One 11210 Equity Dr A Northwest Far 143,961

Building 4 4920 Westway Park Blvd B Northwest Far 130,000

Satterfield & Pontikes-Westway Park 11000 Equity Dr A Northwest Far 65,000

EQUIVALENT DATA4809 Westway Park Blvd B Northwest Far 18,893

Tomball Medical Plaza 506 Graham Dr B Northwest Outlier 55,000

GCRBC-Mobile Opns Complex 9990 Fannin St B South 85,075

Life Science Plaza 2130 W Holcombe Blvd A Medical Center 300,000

American Heart Association 10060 Buffalo Speedway B Medical Center 25,000

Granite Westchase II 10350 Richmond Ave A Westchase 318,551

Granite Westchase 10370 Richmond Ave A Westchase 309,767

Westchase Park 3700 W Sam Houston Pky S A Westchase 272,361

One Oak Park 6002 Rogerdale Rd A Westchase 153,342

3131 Briarpark 3131 Briarpark Dr B Westchase 68,800

Oak Park Plaza 6051 N Course Dr A Westchase 52,907

Anadarko Tower 1201 Lake Robbins Dr A Woodlands 807,586

1200 Timberloch Place 1200 Timberloch Pl A Woodlands 243,484

Houston: LEED Cert i f ied Off ice Bui ld ings

Colliers Research provides expert knowledge on real estate conditions around the world from a

global, regional and local perspective. Contact me for additional market reports or a customized

market survey for your office location.


10/10

The Tenant Advisor

www.coydavidson.com

www.facebook.com/tenantadvisor

Accelerating Success

www.colliers.com

Documents

Tenant Advisor Newsletter 8-2010