Study: Tenants Need More Space Than They Think
As the nation’s economy continues to recover, the DC region's landlords are engaged in intense competition to retain existing commercial tenants and attract new ones.
Newmark Grubb Knight Frank, in a new study released last week, used data from 2013 to 2015 to examine how the market has changed for landlords and tenants. The firm, behind national market research managing director Sandy Paul, identified four key trends shaping tenant behavior:
- More tenants are choosing to relocate to newer space rather than renewing in place. In 2013, 54% of local leases signed were relocations, while 40% were renewals and/or expansions; in 2015, relocations jumped to 66% while renewals and/or expansions declined to 31%. For example, the Justice Department, which occupies more than 1M SF of GSA-leased property in four buildings will consolidate into two buildings in NoMa with a total of 840k SF.
- Although many tenants originally seek to densify, for a variety of reasons, including difficulty in the logistics of densification, the search process may end with signing up for more space or sometimes even the same amount of space.
- GSA-negotiated federal lease renewal terms have shrunk from 7.1 years to 5.7 years. The agency has more than 20M SF of leased space in holdover, and plans to reduce that amount in coming years, either through consolidation or densification.
- As the region loses millions of square feet of GSA and law firm occupancy, the professional business services sector will increasingly occupy a larger portion of DC’s tenant base. That sector has added 20k jobs since 2009, 5,300 just in the 12 months ending October 2015. And 167k jobs are expected to be added through 2020.
So what can property owners and tenants do in the face of these findings? Owners need to be aware of these changes, perhaps change their approach to leasing and get creative in how they market their space, says Bethany Schneider, NGKF’s senior research analyst and co-author of the study, Beyond Densification.
Her advice for tenants is lease now, there are really good deals available. If they can, landlords should upgrade their properties to attract new tenants. Sandy advises prospective tenants to be flexible in the amount of new space they think they need; they may end up with less space than they had previously but more than they had intended to sign for. Either way, they can save money, he adds.