This week we asked one of our partners, Jeff Mason, to talk to our community about common client concerns. Jeff relies on his years of experience to answer the following client’s dilemma: What do you do if the building you are leasing space in is sold?
A client experienced this type of situation when the building SOLD where they were leasing space, and they were “told” they would have to vacate the premises. Did they have to move? The conclusion is that they did not have to move. The lease gave them protection through the lease term since a lease is a written, legal contract between two parties – the Landlord and the Tenant that governs the leased space.
Of course, many conditions are detailed in the contract: such as how space will be used, the terms for use, and the price the Tenant will pay. The contract will also include specific language for what happens if the building ownership changes. Not only is it important to have the real estate broker help negotiate the best market-driven price for space, but it is also more imperative to have a real estate attorney to review the lease. In this situation, the Tenant had a right to use the space even though the building’s ownership changed. There was nothing written in the lease that caused the Tenant to move until the lease was terminated.
If you have any more questions about this or need guidance with your commercial real estate, give us a call at 303-395-0111.
Manufacturing is king
According to the National Association of Manufacturers’ (NAM) Colorado stats, total output from manufacturing was $25.15 billion in 2018, employing nearly 150,000 in our great state from just under 5,000 manufacturers in 2019. About 1/3 of those jobs are in the Aerospace Products and Parts category, by far the largest amount of jobs in the manufacturing sector. This translates to approximately 36,000,000 square feet occupied by these companies in the Denver Metro area alone…touching everyone’s life directly or indirectly.
Why do you care?
You probably know industrial and manufacturing companies are doing well as a whole, based on the general uptick of at-home purchasing during the pandemic. Our state and various counties focus heavily on aerospace, outdoor products companies, food and beverage, and the list goes on. Many of these items are shipped directly through Amazon, which has leased, 700,000 SF in Denver this year. Amazon is on track to hire 175,000 employees by year-end, all according to CoStar. This translates to 167,000,000 SF in Denver that is earmarked as “logistics” real estate.
This has created a domino effect, both good and bad, during this pandemic era. Over the last year, the growth in logistics real estate has carried the industrial sector into a slight uptick in rents. It gives one bright example of Denver becoming more integral in the strategic location goals of companies locally and across the county, propelling Denver into yet another step of continued industry diversification it has experienced in the last several decades, helping us weather any changes in the world and economy, around us.
Written by Tanner Mason, the Managing Broker at Benchmark Commercial. Call Tanner at 303-395-0112 or email him for more information at Tanner@crebenchmark.com.
* Information used in this piece was researched from CoStar, and more information can be found at https://costar.com/home.
Current Industrial Market Overview
Over the past decade, Denver has emerged as one of the most robust industrial markets in the United States. The demand for industrial space in the region has been supported by the strong economic growth of employment, retail sales, and manufacturing. While the legalization of marijuana kicked off an entirely new demand cycle in 2012, increased, high cube distribution space has been the primary driver in recent years.
In 2019 developers of industrial products shattered records by delivering over 6 million square feet of a new product, with approximately 6.8 million square feet currently under construction. These deliveries and new products have helped flatten market rental rate increases, which stands at roughly $9.97/SF. The current average market sales price of $138/SF is up year over year by approximately $5.00/SF, representing an appreciation of 3.6% over 2019 figures. With the amount of new construction in the pipeline, we expect rates to remain relatively stable for the next two quarters with potential for enhanced concessions being available for larger users as developers deliver space, especially for distribution space, which has seen less demand manufacturing space.
Coronavirus shutdowns have had less impact on an industrial property than any other major commercial property type. The essential nature of most industrial operations kept industrial tenants open for business. In the case of 3PL and E-commerce uses seeing rampant upticks in demand for their services fueling expansions evidenced by the likes of Amazon’s 700,000 SF lease at Majestic Commerce Center in Aurora.
Prologis recently reported nearly 49 million square feet in new leases in the third quarter of 2020 alone on a nationwide basis, with two-thirds of that leasing being done in the food & beverage, healthcare, and consumer product industries. In the Denver-Metro area, Prologis owns approximately 10.2 million square feet of industrial space with new projects on the horizon.
Have any other questions on the industrial market in Denver? Curious about how other retail or office markets are performing? Email Jason Bollhoefner at Jason@crebenchmark.com or give him a call at 303-395-0116.
Available sublease space continues to grow in Denver due to ongoing economic factors, the most obvious being COVID-19. Companies are reassessing their office space needs because many people have worked from home on and off for the last 6-9 months. Subleasing space can provide benefits for both companies involved and can be very valuable. If any of these signs resonate with you, it might be time to start looking into how your company could benefit from subleasing office space.
Shorter or flexible Lease terms
Companies that are looking for shorter or flexible lease terms often benefit from subleasing space. If your company is starting up or going through a transition, a shorter lease term could be valuable until you are ready to find a more permanent office space solution. With a direct lease with a building owner, it is standard that ownership will require a minimum of 3-5 years. Whereas with a sublease, the original tenant, known as the sublessor, might only have a few years left on their lease, allowing a shorter timeframe and less monetary commitment toward the office space.
One of the most common reasons companies benefit from subleasing space is to save money. Subleasing commercial space can be very advantageous because it is often more affordable than a standard commercial lease. It may be easier to qualify for if you are starting a company. You’ll likely find an office space that’s 10%-50% cheaper than market value.
Nicer finished and higher-end office buildings:
Leasing sublease space can be valuable if you are looking for a higher-end space that is move-in ready with updated finishes. Most of these spaces are already built-out to the original tenant’s needs, so you likely won’t have to worry about upgrades and buildouts. If you don’t want to spend months obsessing over paint colors and finishes, sublease space is worth looking into. Additionally, oftentimes companies choose to leave furniture behind that you may be able to take for free or at a steeply discounted price.
Fewer “Strings Attached”
Subleases are typically more straightforward and manageable than standard commercial leases. However, they are still binding legal documents and are contingent on the original lease. We recommend having an attorney review both the original lease and the sublease before signing.
If you think your company may benefit from subleasing office space, or if you have any additional questions on how subleasing works, please email Ellory Read at firstname.lastname@example.org or give her a call at 303-395-0114.
Touring and leasing new office space is exciting because you get to explore new properties and visualize how your team could benefit from an enhanced space. Landlords are going to push for a minimum of a 3-5-year lease, so it’s imperative that you understand what you need to know about the building, how it is operated and how your business will fit into that picture. Your Tenant Rep will be there to ask any critical questions that you may miss or don’t think about asking as well.
Here are five examples of things to keep in mind while touring office space.
- Location and Accessibility- You want to find a building that’s easy to access for both employees and clients.
- Space and Layout- It’s important to consider how much space is necessary while allowing for realistic business growth.
- Other Tenants in the building- Do you want to be close to like-minded companies or does that create unwanted competition?
- Parking- Think about how much parking you will need for employees and clients and how it is accessed. Parking in popular areas can be costly.
- Build-Out Policy and layout- Landlords have different build-out policies and the amount of Tenant Improvement allowance given depends on various factors negotiated in the Lease. It’s important to think about your ideal office layout.
As tenant and occupier representatives, we are here to make sure tours go smoothly and the right questions are asked to help you think critically about the individual space. We will ask for your feedback to find out what works and doesn’t work for your company. This helps us navigate through the process to ultimately find you the best space that fits your needs.
If you have any questions about the process of touring office space, please feel free to reach out to Ellory Read or any Broker at Benchmark Commercial and our team would be happy to discuss. Please email email@example.com or call 303-395-0114.