Our latest edition of Connection, Cresa's national newsletter, contains timely news updates that we thought would interest you:
Lease Accounting: Changes Are Coming
In May of this year, the Financial Accounting Standards Board, along with the International Accounting Standards Board, released a document that proposes significant changes in accounting for leases. These changes apply to the books of both lessees and lessors for equipment, real estate, and other assets; they affect every organization that uses GAAP or the International Standards.
The changes are likely to have the greatest impact on lessees, as Corporate America will see the size of their balance sheets grow, earnings depressed, and substantial effort required in record keeping and data gathering. However, as everyone is affected by this (and the transition time will be several years), this should not come as a surprise, and no knee-jerk reactions should result.
For more information on these changes, see our last month's TenantReport.
Market Trends: Slow but Steady Growth
Nationally, modest job growth continues, and most metro markets are experiencing more demand. The US office market achieved second quarter absorption of 17.3 million square feet and a total of 28 million SF for the first half of the year. At this rate, 2013 could outpace 2012 absorption, which was 53 million SF.
Locally, Boston continues to recover at a faster pace than most cities, with jobs now at pre-recession levels. According to our latest market report, Downtown Crossing and North Station are seeing increased demand. And while rent in the Financial District is rising, rental rates in the Back Bay have hit a plateau. At the same time, as companies like PricewaterhouseCoopers relocate, they are leaving behind large blocks of space. Meanwhile, in Cambridge, Kendall Square and Harvard Square, with a 0.8% vacancy rate, is one of the tightest markets in the country. Overall, the proximity to universities, limited inventory, and access to the MBTA Red Line make Cambridge a preferred place for professionals looking for a healthy work/live/play balance. See our Cambridge Q3 Report for more details.
Strategies that Save: The Office of the Future is Here Today
Alternative Workplace Strategy concepts have been part of the CRE decision-making process for at least two decades, but adoption rates hover just between 15% and 20%. While many companies still opt for a more traditional workspace, we have seen that more open, "creative" space is a trend that will gain much more traction in coming years for economic, business, cultural, and real estate-related reasons.
At Cresa, we have found that workplace optimization programs save money and foster collaboration. As staff and company stakeholders become more engaged in the process, there will be less pushback. Indeed, the office of the future is here today. To learn more, see our article on workplace solutions.
Tenant Tips: Lease Negotiation Points
As you negotiate your lease, we remind you to pay attention to the clauses that could affect your tenancy. A lower rental rate may not always be your company's only priority. Here are a few additional points to negotiate:
- Expansion rights - If your company plans on growing, you must have expansion rights. If the success of your business leads to a need for more space or renovations, expansion rights are necessary.
- Tenant Improvement (TI) Allowance - Landlords may offer a low rental rate but not provide any TI allowance. That means you are putting your own money into the landlord's building. At the end of the lease, the landlord will benefit from your improvements.
- Free rent - You may be able to occupy and use the space without paying rent as an incentive for a new or renewed lease. If you lease 10,000 SF at $22.00 per square foot, you would save $18,333 with just one month of free rent.
To read the full issue of Connection, click here.
To reach Matt Harvey, downtown market expert, email [email protected].
To reach John Coakley, Cambridge market expert, email [email protected].
To reach Barry Dub�, who heads our Project Management Group,
email [email protected].