Commercial Real Estate Market Update Q4 2018
The industrial market as a whole finished the year strong with just over 1.9M SF of net absorption. The industrial vacancy rate typically stays at least 100 basis points below the national average thanks to solid absorption and a dearth of speculative construction, although developers are starting to regain confidence and several of the projects that are underway have significant availabilities. Activity in 2018 was strong, putting it among the best years of this cycle. From CoStar
Although the Twin Cities office market continues to see tenants rightsizing their space, solid leasing activity was posted in the second half of 2018, resulting in nearly 600,000 square feet of absorption for the year. Some of the metro’s strongest-performing pockets include the North Loop in downtown Minneapolis, which is attracting tenants that want to be near transit, trendy bars, restaurants and apartments, and the West End area around Interstate 394 and Highway 100 in St. Louis Park and Golden Valley.
Why You Need a Tenant Rep
The Landlord Broker ALWAYS works for the Landlord
The goal of any landlord is to maximize the income that they make from renting their units. When you get to the negotiating table, you need someone who knows the Minnesota commercial real estate market inside and out looking after your interests. Otherwise, you can’t be certain that you’re receiving a fair deal.
You Can’t See or Get Into Every Property
Often times, office spaces in highly desirable buildings and locations within a city fill up before the property is even advertised as being available. If you don’t have a Minneapois tenant rep broker who can get you in the door at places that are newly vacant, you could miss out on great opportunities in your area.
You Have Enough to Do
If you truly want to get the best space for your business needs and your budget, you need to invest plenty of hours familiarizing yourself with the market and searching through listings to find properties that are a good match. A tenant rep broker will take over the responsibilities for you, so you can focus on running and growing your business, not following the commercial real estate market.
Common Area Factor:
Rentable vs Usable
Usable Square Footage (USF)
Usable square footage is the actual demised office space you occupy from interior wall to interior wall. This space is yours and is not meant to be shared with other tenants.
Rentable Square Footage (RSF)
The rentable square footage is the combination of usable square footage plus a fraction of the building’s shared space. The shared space constitutes the common areas of the building, including restrooms, shared hallways, elevators, stairwells, and storage rooms, cafeteria, lobby, fitness center, utility rooms, etc.
Common Area Factor
The common area factor, also referred to as “load factor” or “add-on factor,” is the increase in the rentable square footage above the usable square footage. The equation that can help you figure out the load factor is as follows:
CAF = (RSF – USF) ÷ USF
If RSF is 10,000 and the USF is 8,000, then the CAF factor is calculated as follows:
CAF = (10,000 – 8,000) ÷ 8,000
However, in the Minneapolis/St Paul, the market common area factor for office space is 15% – 20% even if the actual calculation is greater.
Why Do You Have to Pay for Common Areas?
Landlords expect to be paid rent on every square foot in their commercial building. All common areas cost them money while adding value to the tenants, so the costs have to be passed on to the tenants. Landlords assign all common areas between their tenants based on what percentage of the building each of the tenants occupies. Therefore, you have to pay for common areas mainly because:
- You need to use elevators, hallways and stairways, and bathrooms, which all require maintenance.
- The availability of a pleasant lobby on the ground floor will enhance your visitor’s perception about your business.
- Without an office kitchen, you’ll find the services of a cafeteria in the building handy.
In other words, common areas attract certain costs, including maintenance and repair costs. Since you as a corporate tenant will be benefiting from your access to these common areas, it’s wise when you and your fellow tenants contribute a certain percentage.
Should I Use a Commercial Real Estate Broker
The Pros and Cons of Using a Commercial Real Estate Broker
Everyone wants to save a dollar. If you work hard, you can knock a few thousand off the cost of a real estate deal and many of us are inclined to go it alone. But is it worth your time to sift through many online listings and try to negotiate without using a commercial real estate broker? This article examines the pros and cons of finding your own office space versus using a commercial agent’s guidance.
Is their Potential Cost Savings?
Unwillingness to pay the commercial real estate broker commission is one of the top reasons that companies choose to forego using a tenant agent. Yet businesses seldom have to pay out-of-pocket for this commission. The landlord budgets a commission for the listing agent, which is split with the tenant broker upon completion of the lease. In general, the broker’s commission costs the company nothing. One notable exception, if your broker is asking for above-market fees.
A commercial real estate broker can gain cost savings for a company through the broker’s market knowledge, access to privileged information, and skill and experience at negotiations. A business owner could successfully navigate the lease or purchase process, but might miss important market information a broker could supply that would maximize profits as the business expands. He or she might not recognize potential negotiation items that would save them hundreds or thousands of dollars over the course of the lease. Having an agent that represents your interests could translate into money in your company’s pocket.
Who is Working for You?
Commercial Real Estate Listing agents are always working for the landlord, as they are duty-bound to protect the landlord’s interests. If company managers only works with listing agents, they must rely on their own wits to protect the company’s interests. This creates a decided disadvantage at the negotiations table, as only the landlord is represented by professionals familiar with the process.
A fiduciary bound tenant agent will work for your company’s interests at every stage of the process. They can more disinterestedly search for properties listed with all other brokerages and can take into account your company’s situation and needs, rather than working to fill a building at the best price for the landlord.
Save Time & Money!
Without a commercial real estate broker, narrowing down the list of properties available online can be overwhelming. Our brokers bring experience and a solid understanding of Minneapolis/St Paul area, and can help remove spaces that are not ideal for what you do.
In addition to avoiding the heavy investment of time just to find the property, time savings can be realized as the deal progresses, in organizing inspections, negotiating and re-negotiating terms, completing plenty of paperwork, and making offers. Because the broker has experience and connections, the search for a property, as well as the completion of all the contingent steps to signing the lease can be streamlined.
There is a con to the time element of using a commercial real estate broker. Your agent does not get paid until the deal is signed. This may motivate him or her to rush the process along, without giving full consideration to your company’s needs. Tenants will need to be aware of this fact in order to insist on moving the deal along at the speed that is best for their businesses. Our agents have flexibility in how we structure our fees to avoid this potential problem!
Should You Hire a Tenant Commercial Real Estate Broker?
Having an experienced advocate working for you can only be in a company’s favor. However, tenants must be aware of and vigilant about the inherent conflicts of interests in the process.
We avoid conflict with how we work and how we structure our fees. These negative incentives can be moderated in your contract with the broker. Depending on the project, we have flexibility on how we structure fees. Rather than having the landlord pay a commission, the company can offer a flat fee for the broker’s efforts, whether or not a space is found; or an hourly fee credited toward a success bonus if a lease is signed.