Where do realtors go for their commercial real estate market data?

April 24, 2009 8:20 AM

Our landlord wants a five percent per year increase to renew our office lease for two years. Where is the data that shows the commercial market is going the other way?

We're a struggling nonprofit in a more-depressed-than-average city in the San Francisco Bay Area, and it's anecdotally obvious that nobody is trying to raise commercial rents here in this economy. I'm having a harder time than I expected finding hard numbers to back that up. (Apartment rent trends are easy; the commercial market is what's baffling me.) Where do real estate professionals, say, get their market data for commercial leases in a particular geography? I suspect that data could be decisive in the lease negotiations we're about to undertake.

posted by gum to work & money (9 comments total)

LoopNet.
posted by LuckySeven~ at 8:31 AM on April 24

I'm by no means an expert, but I would think that the best data you could have for your lease negotiations would be better terms for comparable space in the area. Even if you don't intend to move, you should at least give the appearance that you consider it an option. Presenting your landlord with competing options is probably more effective than statistics, since it would present a concrete threat to the continued tenancy of the space.

That said, if you are already getting a good deal on the space, and you can't find anything like it for a similar price, you may not have any options.
posted by [expletive deleted] at 8:36 AM on April 24 [1 favorite]

Data point: We're currently looking at new office space in downtown San Francisco. We're seeing new, bigger places with better views (the bay bridge and bay instead of a brick wall) for a lot less money. There is a huge glut of empty office space (which is is probably why your landlord is trying to raise you rents: to cover their loses elsewhere)

That said, your moving costs are likely far more than 5% of your rent and your landlord knows it.
posted by bottlebrushtree at 8:54 AM on April 24

I'd start by checking out the websites of some of the area's commercial real estate brokerage houses. CBRE, Cushman & Wakefield, Colliers, Staubach, Jones Lang LaSalle, Advantis, for a start. Their websites sometimes offer free local market reports (vacancy rates, average rents, etc). In a pinch, call up the local office and ask for their market research analyst group (NOT the financial analysts). Those folks sometimes will send you their reports for free and give you their professional opinions because they don't do leasing themselves. YMMV, but I once had that job and didn't have a problem with people like you calling up and asking nicely.

FYI, Costar is the primary source of raw market data in most American commercial real estate markets. Their data includes some info that may be useful to you. Such as the class of your building, its occupancy rate and lease terms of existing tenants. Maybe what they paid How much square footage exists in the area for that class of building, how much it's going for, net absorption. More detailed information, like tenant improvement allowances, option years, rent basis, and escalation factors will require you to call up the brokerages houses and ask.

Each commercial real estate house then takes that data and has its in-house analysts manipulate it to fit their own requirements and assumptions. There is also a big caveat: Costar gets its data by calling brokers, tenants, and landlords and asking them for info. Most people willingly tell them because they themselves want to be able to use Costar as a source for comprehensive market data.
posted by pandanom at 9:01 AM on April 24

Also, given that times are tough, a more junior tenant leasing broker might be willing to represent you in your search if he hasn't got much else going on. A few thousand sf for 2 years isn't much revenue, but it's better than zero.
posted by pandanom at 9:07 AM on April 24

Also Grubb & Ellis, Cassidy & Pinkard, Julien J. Studley, CarrAmerica, and Trammell Crow. Not sure how many of them operate in San Francisco, though.
posted by pandanom at 9:10 AM on April 24

Down here in the South Bay I like View from Silicon Valley's stats.

Nov 08 through Feb 09 stats:
% office space for lease 19.0% 19.2% 20.6% 21.10%

Down here along the 237 they've finished the shells of half a dozen Class A office properties and have now mothballed them. I'll know the recession's over if & when these are occupied.
posted by mrt at 9:29 AM on April 24

Another factor to consider is the amount of rented space at your office location. If there is a high vacancy rate he is probably having problems meeting his debt coverage ratio and wants to raise your rent to try and keep up. His lender restrictions have gotten tighter and they will be keeping an eagle eye on his occupancy and NOI.

That said, there is a lot of commercial out there right now and rates in the Central Valley, for example, have dropped about .60 per sq/ft on class B space in the last 18 months. Luckyseven is probably right on loopnet, using [expletive deleted]'s strategy.
posted by arruns at 3:04 PM on April 24

Thanks, everyone -- good advice all around!
posted by gum at 4:21 PM on April 24