March 2014

Trading Spaces

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Brokers often reminisce about the “good old days” when landing a new client usually went hand-in-hand with a company who was eager to expand to lease bigger office space. That steady demand to gobble up more space was great news for brokers, landlords and developers. These days, office leasing is a lot more like musical chairs. Sure, companies are moving, but they don’t necessarily need more space, just different space.

There is a constant churn in the market of companies shifting locations. Some tenants are looking to trade up to better space or take advantage of a good deal on rent, or perhaps move to cheaper space as they tighten their belts on expenses. Other companies want a new image, a more convenient location or different bells and whistles in terms of building amenities. And yes, even though commercial real estate markets are improving across the country, there are still landlords working to steal tenants from neighboring buildings with a sweet deal.

That musical-chairs-scramble for space can vary widely from market to market. In most cities, there are still plenty of chairs to choose from and there is no risk of being left standing when the music stops. In other markets such as Austin, where the supply of space is shrinking, finding that right next move is getting tougher.

That is exactly why it is so important to have access to accurate, real-time data to reveal all of the available choices. Quickly and efficiently sorting through spaces makes a potential move more likely – making both senior company execs and brokers more likely to get a move accomplished and making those moves less expensive.

Peeling Back the Layers on Micro-Markets

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We’ve all heard that saying that when it comes to real estate, it’s all about “location, location, location.” Companies pick locations for a variety of reasons―to be convenient for employees, or perhaps to locate near customers or key clients. In some cases, a tony address is also a nice boost for the corporate image.

 Searching for that perfect location means taking a dive into the market. This could mean a particular market like Austin or Dallas or digging deeper into a specific submarket such as downtown or northwest metro. Rents within those submarkets can swing widely depending on the type and quality of the building and once again – location. Narrow that focus even more to a prime thoroughfare or a specific one or two-block neighborhood and companies find themselves in a “micro-market” that becomes its own separate entity with unique factors that drive availability, cost of space and even impact the corporate image.

So where are some of the most high-demand micro-markets? You might be surprised. A study conducted by JLL last fall ranks the 10 most expensive streets for office space in the U.S. The list includes:

1.  Sand Hill Road, Menlo Park, Calif. (Silicon Valley) Average rents: $111.00 per square ft

2.  Fifth Avenue, Manhattan, NY. $102 per square ft

3.  University Avenue, Silicon Valley, Calif. $95 per square ft

4.  Greenwich Avenue, Greenwich, Conn. $93 per square ft

5.  Pennsylvania Avenue,  Washington, D.C. $76 per square ft

6.  California Street, San Francisco. $62.10 per square ft

7.  Boylston Street, Boston. $60.20 per square ft

8.  Avenue of the Stars, Los Angeles. $60.12 per square ft

9.  Royal Palm Way, West Palm Beach. $58.52 per square ft

10.  Newport Center Drive, Orange County. $50.06 per square ft

 Peel back one more layer and companies will find that even a single building can be its own micro-market. Every city has those “it” buildings – the tallest, shiniest or Main & Main locations. Names such as 30 Rock in New York, or even Austin’s own 100 Congress are iconic buildings. But there also is a hierarchy even within such landmark buildings. Rents can vary significantly even within a building, with space on the higher floors going for a premium compared to space on the lower floors.

That price differential can be found in many downtown and suburban buildings in metros across the country. Tenants often prefer the exclusivity of the upper floors, as well as the sweeping views that go along with those locations. RealMassive helps companies to peel back those layers on submarkets, micro-markets and specific buildings with its real-time leasing information. Who knows, a prime location might just be within your reach.

Putting a Price on Green Building

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Green building has been a hot topic for years.  You don’t have to be a tree hugger to want to do your share to reduce energy consumption and save the planet. One of the key questions in the ongoing discussion of green building is not could I or should I embrace sustainability, but how much will it cost and where is the return on investment?

Unfortunately, commercial real estate buildings are energy hogs. According to the U.S. Green Building Council (USGBC), buildings are one of the heaviest consumers of natural resources and account for a significant portion of the greenhouse gas emissions that affect climate change. In the U.S., all buildings (ranging from office towers to schools) account for 38% of all CO2 emissions and 73% of electricity consumption.

Since green building or Leadership in Energy & Environmental Design (“LEED”) standards were first created in 1998, there has been a growing mountain of data to support the economic argument for green building. According to the USGCB, operating costs decrease by 13.6% for newly constructed green buildings, while landlords see their building values rise by 10.9% for new green construction.

The LEED system rates buildings as Platinum, Gold, Silver or Certified based on design, construction, operation and maintenance. A 2011 study of Gold LEED buildings in the government’s General Services Administration’s portfolio found that the green buildings generated 25% lower energy use compared to the national average.

Who wouldn’t want to shave 25% off their utility bill these days? More developers are building green office buildings to lower operating expenses for tenants. After all, it is the tenants who are footing the bill on utilities such as lights, heating and cooling. Those operating expenses pass directly through to tenants as part of common area maintenance (CAM) charges. Such costs are not inconsequential. CAM charges add to a company’s gross occupancy cost, and even a $1 per square foot difference can tip the scales in location decisions.

Companies are seeking out LEED certified buildings with proven lower operating costs. Tenants are also recognizing the added value that green buildings offer in terms of boosting worker productivity and employee retention. So, it is no surprise that green building is emerging as a standard component to new construction, and even existing buildings are accelerating efforts to put more energy efficient equipment and systems in place. Landlords are increasingly recognizing that green building is not just an added amenity or a box that companies check when searching for a new location, but rather an increasingly critical part of decision making for new locations.

Market Data Drives CRE Decisions

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Shopping for office space isn’t like buying a new pair of shoes where you can pick the color, size and style and then look for the price sticker. Real estate is a unique animal with no firm “off-the-rack” price. Real estate rents and terms are all heavily negotiated between the landlord’s leasing agents and the tenant and their leasing agent.

Maneuvering in such an uncertain environment can be tricky for tenants, which makes it even more important to utilize good, accurate data to aid in that decision making. The financials of a lease deal or total occupancy cost is usually the number one factor driving real estate site selection decisions. Companies need to keep an eye on the bottom line expense, and in this case that includes net rent, real estate taxes and common area maintenance (CAM) charges.

Having access to reliable data and a good understanding of what those numbers really mean can give tenants a solid foundation for making good real estate choices. One of the most important things to note is that the “asking” or marketed rental rate isn’t the same as that price tag on the pair of shoes. In fact, the asking rent can vary substantially compared to where landlords are actually doing deals in the market. In some cases, landlords may quote a rental rate that is $1 or $2 higher, or even as much as $10 higher, than what a landlord is actually hoping to achieve.

Certainly, landlords have been known to employ a little wishful thinking and they like to push the limits wherever possible. Leasing agents wouldn’t be doing their job if they weren’t trying to get the best possible rate for their owner. In other cases, those are rates that landlords not only hope to achieve, but need to achieve. For example, if an owner purchased a building recently, they may have underwritten that investment with aggressive assumptions on rent increases and now they need to work towards that goal of realizing higher rents.

The economics of a deal go beyond the asking rent to include the gross occupancy cost, which also includes CAM and taxes. Common area maintenance charges often include everything from the cost of cleaning restrooms to watering the plants in the lobby. In most office buildings, utilities are included as part of CAM and are divided so that tenants pay their pro rate share based on the square footage they occupy.

The bottom line that tenants need to remember when making decisions that, quite literally, affect their own bottom line is that having accurate, reliable data is a valuable tool. Commercial real estate market information provides that essential starting point for comparing different space options. It also helps to give tenants a clear picture of the real estate market and a good starting point for kicking off those lease negotiations.

 

Tailoring Office Space to a High-Tech World

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Going “to the office” has been a pretty universal expression for 9 to 5ers for decades. It automatically conjures up images of glass and steel buildings and a beehive of desks and ringing phones. These days, rarely does anyone stick to the confines of a 9 to 5 schedule and the “office” is by no means a stationary place.

The tools and space needs of today’s workers have clearly changed. Employees are no longer tethered to a desk and chair. Need to meet with clients, or work from home to care for a sick child? No problem. Thanks to laptops, smart phones and tablets―along with the wonderful world of Wi-Fi and cloud computing―workers are increasingly connected and mobile.

That mobility is forcing companies to rethink their physical office space in terms of size, location and how those spaces are configured to meet new workplace trends. There is plenty of data available on that changing office footprint. Studies have shown that the amount of space used per employee is shrinking. According to a recent survey conducted by CoreNet Global, the average amount of space per office worker globally has dropped from 225 square feet in 2010 to 176 square feet today, and is expected to decline to 151 square feet per worker in 2017. Additional industry research suggests that only about half of office space that companies around the world own or lease actually gets used on a day-to-day basis.

Certainly, the way people work today is driving change to the physical office footprint. Companies are downsizing and shedding excess space. The design of those spaces also is evolving as companies look for more contemporary layouts that feature shared work stations, carve-outs for employee collaboration and smaller team meeting spaces. That shift is by no means a death knell for traditional office buildings and skyscrapers. Office space is both relevant and critical to operations. But companies are rethinking the size and scope of that space to better fit their needs for today and for the future.

 

Competition Heats Up in Austin

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As RealMassive kicks off its new commercial real estate (CRE) “hot topics” series, where better to start than our own backyard? While other metros around the country are still mopping up a surplus of office space left in the wake of the recession, the Austin market is sizzling.

The data on core real estate fundamentals paints a picture of a healthy market with robust demand. During fourth quarter, Austin’s vacancy rate dropped for the fifth consecutive quarter to reach 12.1 percent at year end, according to data from CBRE. That strong demand also has pushed rents higher by more than $2 per square feet since the end of 2012.

The thriving tech sector has helped create job growth that has given the local metropolitan statistical area (MSA) one of the lowest unemployment rates in the country at 4.5 percent. The strong economy and the vibrant office market have put Austin firmly on the map among companies looking at Austin as a potential expansion market, as well as commercial real estate CRE investors. Austin is outperforming the national office market, which has been averaging a vacancy rate of about 15 percent.

For example, it was recently reported that Athenahealth will lease 103,000 square feet of office space at the former Seaholm Power Plant. The company has said that it plans to add 600 new jobs over the next decade. The 5 acres surrounding the former power plant is part of a larger mixed-use development that will add condos, retail and office space to Downtown Austin.

The big question is how the strong demand and shrinking supply of space will impact office leasing decisions going forward. Companies may have to work harder to find good real estate options in the market. For those firms with leases expiring, maintaining the status quo and signing a lease renewal to remain at their present location might not be the best option, especially if landlords continue to push rents higher. Tenants may be forced into the office market to look at their options whether they want to or not.

The upside is that companies will soon have more real estate choices to consider. After a three-year hiatus, construction returned in 2013 with the completion of a few small projects and there are more new office buildings in the pipeline. Two major construction projects that broke ground in 2014 will bring about 430,000 square feet of new office space to the southwest metro. That activity will alleviate some of the competitive pressure and give companies more alternatives in the future.

 

RealMassive Takes Customer Service Up a Notch

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One might assume that companies operating in that parallel universe — the virtual world of the Internet — are at a disadvantage when it comes to customer service. True, we don’t always get that direct interaction of making eye contact and shaking hands. Nonetheless, we are reaching out to customers to make that connection and make sure they are getting the most out of RealMassive’s real-time platform―our information, collaboration tools and other resources.

To that end, RealMassive has added our own dedicated customer experience manager to our growing company. Angela Franz joins RealMassive from CBRE in Austin where she served as a client services specialist supporting a brokerage team. We know her knowledge of the commercial real estate industry and her work with client services will be an asset to our firm.

Like everything else in our world that is evolving, customer experience management takes traditional customer relationship management to the next level. Angela will spearhead our efforts to be proactive and intuitive in anticipating customer needs. Think of her as your own personal liaison to help you get the most out of the CRE data that RealMassive has to offer.

Part of Angela’s task will be reaching out to customers to find out how we can do it better. What tools and information do you need to get the most value from your real-time search for office space? Angela will take a proactive approach to engaging in online chats, conducting customer surveys and helping to train customers in how to use RealMassive’s new platform.

At RealMassive, we are never satisfied with the status quo. Whether it’s technology or customer service, we are always looking for ways to make it better, faster and more efficient. Customer experience management is just the latest step in that process.

 For more information on Angela’s hire, see our news announcement on Marketwired.

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