CRE Update

This WSJ article on raising vacancies and shrinking lease rates for office space really hit home for me.

I am seeing the trend described in this article on both the landlord rep side (not fun telling a landlord that they really need to take a deal that includes 6 months of free rent and a 10% reduction in the asking lease rate) and the tenant rep side (loads of fun telling a tenant you got them 6 months of free rent and a 10% reduction in the asking lease rate).

From the article:

Rent for office space is falling at the fastest pace in more than a decade as vacancies create a glut and landlords slash prices to attract tenants.

Declining rents and rising vacancies in the office sector signal more woes for the commercial-real-estate market, which already faces a lack of credit and plummeting property values. With landlords more likely to default, financial institutions, which hold trillions of dollars in commercial-real-estate debt also face more pain. "It means more losses for the banks, because they will have to write off more bad debt," said Victor Calanog, director of research for Reis.

In Boston, intellectual-property law firm Fish & Richardson PC recently signed a lease for 124,000 square feet of space in a new development under construction on the South Boston waterfront, paying about $48 a foot with about $85 a foot in tenant improvements from the landlord, according to a person familiar with the deal -- compared with the roughly $55 a foot the firm is paying now to landlord Equity Office.

In its attempt to persuade the tenant to stay, Equity Office, which is owned by private-equity firm The Blackstone Group, initially offered the firm $84.50 a foot in December 2007, but dropped the price over time to stay competitive and sent wine and champagne gift baskets to all of the firm's 45 principals, according to Tim French, Fish & Richardson's Boston managing principal.

"We were like the belle of the ball," said Mr. French.