Spring is late to Sioux Falls Office Market

Spring is late to Sioux Falls Office Market

Last week I toured a 4,000 square foot office user around the Sioux Falls Market. It's a large national company and they have outgrown their current space. The original availability study contained 37 properties that could meet their needs from a functional standpoint. Our showing list was 12 properties, and our final RFP list is comprised of 4 properties. 

If you are a tenant this is great news. While many struggling office building owners have adapted to this new normal with better financing or perhaps selling troubled assets, there are some amazing deals to be had out there. 

This is not good news for office building owners. Think about it. You are competing against nearly 40 properties for every office building tenant that comes along. Here are some things I noticed last week.

1) With so many options in our small market many properties were discarded by my client out of hand due to the exterior building photo. Older, peeling paint? Out. A confusing or vague specification sheet? Not on the showing list. Bad location or landscaping? No way. 

2) The listed price points were all within 10% on 90% of the properties. The remaining 10% of the properties were true Class A or Class C properties and were priced accordingly. 

What does this mean? If the office space is not turn key, meaning ready to move in to, the space will not be seriously considered. Worn out carpet or interior paint? Not on the RFP (offer) list. 

3) The Sioux Falls Office market is still very sick. Sure leasing has picked up and new office construction has largely ceased. But demand clearly still is tepid at best.

It's a competitive market out there. Landlords need to be using the best brokers to ensuring their space makes the original showing list and properties need to be at their best for these showings. These spaces are getting 3 minutes tops to make a positive impression.  

Spending Money on Attorney Lease Review

I like saving money. Ask my lovely wife how cheap I am, and I am sure you will at least a couple of humorous stories, some dating back to college. For example, in my first apartment I slept on the floor of my room rather than spending money on a bed or even a blanket. I’d still be doing that hundreds of commercial real estate transactions later if I hadn’t married my wife.

So I get it. Landlords and business owners in our great state of South Dakota hate spending money to have an attorney review their lease document prior to execution. Sure, it costs money. Sure it slows the transaction down by a good week at least. But it is definitely worth it. Without legal review, Landlords and Tenants open themselves to tremendous risk. A classic penny wise pound foolish arrangement which can have serious repercussions in the future.  

A good real estate attorney can save you thousands if not hundreds of thousands of dollars by simply reviewing your lease document from a seasoned legal perspective.

Quite some time ago a got a panicked call from a Landlord I had completed a lease transaction with in the past. The Tenant was in their office asking to be let out of the long term lease agreement due to changes in his organization. After several conversations regarding the subject, my client (Landlord) had decided against my advice to not have their attorney review the lease agreement prior to final review and execution.

It turned out to be a non event. My client was iron clad and in good shape with no issues what so ever. But imagine if they had made a mistake in the Lease drafting that allowed the Tenant to walk free from their commitment. I never asked, but I bet that my client spent that night reviewing their agreement in a cold sweat.

I have other examples that did not turn out well. We’ll save these for another day. Bottom line, spending a little money with your real estate attorney is insurance well spent.  

  

Change

“All great changes are preceded by chaos.” -Deepak Chopra

Every day we are confronted by the fact that our modern world is changing, and that change is accelerating. If you are reading this blog you know exactly what I am talking about. Let's think about it for a moment. 

Remember when you wanted to look something up you went to the library? Google changed that in the course of a few years and has made a $40 Billion Dollar Annual Business in the process. Today I have been tweeted, texted, called, and may Facetime all on my cellphone. Nobody had cell phones when I graduated from high school! I'm only 30 years old. 

I remember when my dad, an IBM sales manager at the time, brought home the first family computer. It had a green screen and the keyboard made a funny kind of a click-clack like the keys were spring loaded.  With a good deal of excitement my Dad plugged the computer in the phone line and we booted up Prodigy. Remember Prodigy? In 1990 it was the world's 2nd largest search provider. Today it is a distant memory after being swallowed by what is now the reenergized AT&T.

Think about how Facebook has changed our interaction with old friends and classmates. Now you know what everyone had for breakfast on this Easter morning.

In this time of unprecedented change, think about all of the new businesses that have built their castles on this new digital ground. Norton Anti Virus (Symantec). Netflix. LinkedIn. Ebay. Zynga.

Older companies can get into the mix too. Apple placed itself firmly in this new landscape by controlling digital content (iTunes) and creating a simple yet innovative user interaction with iPods, iPhones, and iPads.

What does this have to do with commercial real estate?

Today nothing beats face to face interaction and a relationship built on trust and performance. However, the methods in which we reach potential buyers and tenants will change substantially in the next 10 years. As the younger, digital generation obtains the means and decision making power to make commercial real estate decisions, brokers and owners need to communicate effectively to this audience. It also means that strong companies of yester year (Blockbuster, Best Buy, etc.) will face increasing competition and decreasing profits. A realistic plan for tenant turn over in commercial properties needs to be reviewed on a quarterly basis.