The commercial real estate market is experiencing a slowdown as businesses trim costs and make do with less - including office space.
Dale Willerton is founder of The Lease Coach, an Edmonton-based consulting firm that represents tenants and has operations in Canada and the United States.
He said in a recent Globe article that tenants have more options now when dealing with landlords, because the economic situation has changed. See article here.
Mr. Willerton has trained a network of franchisees dedicated to working with tenants throughout Canada and the United States. Health-care professionals such as dentists, chiropractors and physicians frequently come to The Lease Coach for assistance with their commercial office or retail leases. He has also advised quick-services restaurants such as Quiznos, Dairy Queen, Arby's and Moxies; as well as retail outlets by both independent tenants and franchisees such as Radio Shack, Sears, Telus Stores, Grower Direct Fresh Cut Flowers, GNC Nutrition Stores, and so on.
Mr. Willerton is the author of Negotiate Your Commercial Lease published by Self-Counsel Press.
He was here to discuss leasing trends/issues/negotiations for small businesses across Canada.
Christine Mushka, globeandmail.com: Hi Dale, and thank you for joining us today from Edmonton to talk about commercial property - both office and retail - and rent relief.
This is for all the folks who are not watching Michael Jackson's memorial service. The first question is mine: How has the leasing of prime, modern, well-located offices in Canada - often referred to as Class A space - been affected by the current recession?
Dale Willerton: Companies downsizing need less space and companies experiencing reduced sales can't afford the higher rent newer space. Less demand is driving rental rates down - which is good for new tenants and tenants doing lease renewals.
Christine Mushka, globeandmail.com: Is there a difference in what is happening in Canada and what is happening in the United States? Do tenants here have unrealistic expectations of landlords as a result of the U.S. experience where the recession appears to be deeper?
Dale Willerton: No, there is not much difference - it's more property-to-property, landlord-to-landlord differences than country-to-country. If a landlord has owned a building for 15 years and has little or no mortgage then they are much more secure than a landlord who bought a building for top dollar right before the recession and who is highly leveraged. Most tenants don't understand that some landlords can afford to hold vacant space while others cannot. Tenants seem a bit confused that they get a different story from one landlord to another.
Christine Mushka, globeandmail.com: Downtown Calgary - where oil companies are headquartered - has been flooded with sublet space. Companies have had several rounds of layoffs, and they need less space. With that sharp rise in vacancies, what will landlords have to do to sublease their space? Cut rents? Offer incentives? Improve the space by painting, or showing new tenants how the space can be refigured?
Dale Willerton: Sublease space is not a problem for landlords because the landlord is still receiving rent payments on that space (it's a problem for the tenants who are still paying). Yes, landlords will be doing all of the above to lease their space but the problem is not nearly as serious as the media is making it out to be. Most landlords have stable properties with stable tenants. Much of the time when a company downsizes it continues to pay its rent, but by laying off staff the company saves on salaries etc. Remember, in the past couple years office rents in Calgary have doubled and even tripled so for many landlords this is only one step back after 10 progressive forward steps. Sure, a few new buildings under construction will be affected more dramatically but overall the office rental market is very stable.
Christine Mushka, globeandmail.com: Do tenants often fall into the trap of leasing too much space?
Dale Willerton: Occasionally tenants lease too much space. We did three space reduction negotiations in the last couple months for tenants who had leased too much space but it's rare. If that is your situation then be aware that a landlord would normally rather reduce your area than lose your tenancy entirely.