Whose Market is it anyway?

We have great relationships with the tenant rep community here in Houston. One of the many great things about our job is the opportunity to be in constant dialogue with proven deal makers we respect. A conversation that seems to come up quite often these days centers around whether the market is beginning to turn in favor of Landlords. There is no doubt we have been in a protracted "tenant's market" with very generous concessions and falling rent rates in most Houston submarkets. However, we believe we see the tide beginning to turn in favor of office owners. It is all about supply and demand and given the supply and demand trajectories, we predict owners will begin to have more leverage in deals -- especially with the larger contiguous blocks of space. To give more color on the supply and demand dynamics, take a look at the limited supply of blocks over 100K SF by Houston sub market:

The trend for larger transactions is also a positive one. There were 16 transactions in excess of 100,000 SF in 2010 (Compared to 9 in 2009) with several large tenants currently believed to be in the market evaluating space options. All this is good news for landlords with large contiguous blocks. These owners should begin to take advantage of a transition of leverage in lease negotiations. We see the transition occurring in three stages:

The important factor for Landlords is to be ahead of the curve on this transition so they do not leave any value on the table from the yearly NOI to the exit value of the asset. Many smart tenants reps will begin to see the end is near and will try to lock in long term deals while the market is in a trough. Savvy owners will recognize this and begin to get a sense of the true leverage they have. As the progression begins, maximizing value is the name of the game for office owners.