How to Lease Up Difficult Space

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As an office building owner in Orange County, you’ve probably had to grapple with the problem of leasing up difficult spaces. It’s quite common for any building, regardless of location and quality, to have a suite or two that seems to take longer to lease than others. The list of reasons why it is a long one. Maybe that space in your building faces north and a tree on the property next door blocks the natural light. Your problem space may be upstairs in a walk-up building or right next to an older elevator that’s making more noise than it used to. It could be too big or too small to appeal to the typical tenant looking in the area. The list goes on, but whatever the reason, that space is costing you money and you’ve got to figure out a way to fix the problem. Let’s take a look at some potential solutions:

Assess the Problem

The first thing you will need to do is to conduct a thorough review of the space to determine the nature and extent of the problem. Brutal objectivity is a must. Look at the space as if you were evaluating it for your own occupancy. What about the space that would eliminate it from your serious consideration? Whatever that is, if it bothers you it won’t go unnoticed by others. Make lists, one for the things you can’t change like location, access or walkable amenities, and another for the things you can change like colors, lighting, quality of materials, state of repair and layout. Make sure to consider the overall condition of your property, as well. Judge its curb appeal, state of repair and competitive position in the local submarket, as problems here will compound the difficulty in leasing your least desirable spaces.

Make the Investment

What we see too often is building owners who refuse to make the up-front investment to mitigate the problem. They tend to wait for a prospective tenant to push back on issues that are plain to see. This is understandable. No property owner wants to make capital expenditures without the assurance of cash flow to cover them. But, waiting around for a cart that your horse can pull gets you nowhere. Your problem space makes never make the shortlist if its shortcomings remain in plain sight. First impressions are very important, especially in the case of tenants who tend not to allow adequate time to secure their next location (which is most of them).

So, prioritize your list and cost out each line item, with emphasis on those items that have the most powerful visual impact. Then decide what you can afford to do upfront and do it! Chances are most of what you spend is money you’ll have to spend after identifying a prospective tenant anyway. It just could be that a fresh coat of paint, brighter-colored carpet, some strategically placed can light and new window coverings will turn your next prospect into a rent-paying tenant.

Offer Appropriate Incentives

No landlord relishes the idea of offering incentives to prospective tenants, but the reality of it is, even in the tightest of markets, they figure into the equation. Loss of rental income is the biggest yield killer of them all. So, if offering two months of free rent gets you a tenant three months sooner, the math works in your favor. It may also allow you to get a higher coupon or face rate that you can use to secure higher rates on your other space or help you refinance the property. The effective rate you receive in each space is what counts at the end of the day. So, offering rent abatement within the lease term or early possession before the commencement date might be in your best interests.

Being more generous with your tenant build-out allowance can also work in your favor, especially if some of what you spend could enhance the value of the space for future tenants, as well. Agreeing to pay for that glass wall for the conference room or expanding the kitchen/break area could really pay off down the line. Just make sure the money you spend on the extras that are likely to remain popular.

One time payouts like moving allowances may also make sense if they help speed up downtime, especially for more creditworthy tenants. If you do go this route, it’s best to ask for heftier security deposits so you can recoup those expenditures in the event of default.

Encourage the Brokerage Community

The most professional tenant rep brokers are primarily focused on delivering value to their clients. That said, they expect to receive a leasing fee that is fair and reflective of the fees offered by other owners. So, trying to offer a lower rate or insisting on a shorter lease term to save on commissions is ill-advised. Hiring a seasoned professional who specializes in your immediate area to represent you is likely to get you the best possible result. They can help you develop a strategy that takes into account current market trends and competing for space. They also know and have good working relationships with the other top producers in your area. Chances are that just a handful of brokers do most of the business in your submarket. So, making sure you have ready access to them is perhaps the most important component of your leasing strategy. You may even decide to offer brokers an above-market fee on your most difficult-to-lease space to draw extra attention to it.