As we continue here in the spring of 2016, the ‘R’ word isn’t heard much any longer – except as “recovery” – and even then, our area has put the recovery phase in the past. The northern Nevada industrial real estate market has fully recovered and in doing so, the reality has changed for all tenants. Our market has crossed over to a slight landlord-favored climate at this time. Plus, the dominance of REIT owned locations has further strengthened the landlord side of the negotiating formula. We are experiencing specific trending of which tenants need to be aware. The most common trends include:
Landlord’s stronger criteria for tenant base and use. No longer are landlords accepting the types of uses they were three and four years ago. Heavy truck users in smaller locations are meeting pushback. Any products that emit odors of any kind or dust emitting uses are not finding highly welcoming receptions.
Lower credit risk. Landlords are looking deeper into financial statements and being more demanding on tenants to enhance their credit and lower the landlord’s risk on leases.
Short termed offers are getting little traction, with landlords seeking longer-term transactions.
Rent has stabilized and as inventory continues to be occupied with a lower vacancy rate, we expect to see slight upward movement in rates.
Operating expense recovery costs are up. Commonly called triple net fees or CAM charges, these fees are reflecting the landlords broadening of their cost recovery basis as much as the market will allow. These fees are non-negotiable and are substantial costs to tenants.
Concessions are down. Free base rent periods are almost disappearing and easy tenant improvement allowances are evaporating.
Multiple and long term renewals are becoming tough to secure, with landlords preferring to keep their properties more flexible in the future to accommodate future market needs.
Pre-negotiated renewal rates are becoming very tough. At-market rates are the norm at this time.
Lease cancellation clauses are being denied across the board. The days of getting a low, long term rate and having the option to bail out early seem to be winding down, if not over altogether.
Flex sizing is out. In years past, firms could negotiate the ability to downsize or upside within a property; however, this is also being denied almost across the boards.
Rights of first refusal: While still being allowed, these too are getting tougher to achieve.
Tenants dealing directly with their landlord for an initial lease or a renewal is still going on occasionally. With the market toughening up as it is, having a qualified, experienced agent on your side to guide you through the process and advocate for your interests seems smarter and more essential than ever.
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