Landlord’s Market

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In a “Landlord’s Market”, Tenants Still Come First

By Robert Peddicord

Even with the specter of the Asian economic crises, the commercial real estate market in Southern California continues to be robust with industry experts projecting ample room for continued growth in the region. Job growth is at an all-time high; technology, entertainment and a wide range of service industries continue to expand; and demand for office space is up, constrained only by the lack of new construction in most submarkets. The consensus is that it’s a landlord’s market and according to recent statistics released by CB Richard Ellis, rents are up 6% in the second quarter of 1998 over last year’s rates.

My own view is that wherever the market stands in the real estate cycle, a benchmark of success for owners of major office buildings will always be the ability to attract and retain good tenants. While rental rates may not be at ideal levels for all companies seeking office space in Southern California, prospective tenants can rest assured that the region’s most successful landlords are bending over backwards to develop innovative tenant services that reflect today’s technology and business needs.

As Southern California’s largest office landlord, Arden Realty tries to exemplify the type of creative thinking that is being applied not only to attract tenants but also to streamline the leasing process. A commitment to capitalizing on geographic concentration, simplifying the move-in process and developing new ways to serve tenants and leasing brokers means staying at the forefront of technology and management systems while making sure that one-on-one relationships remain strong.

One component of that strategy which reflects a growing industry trend among large landlords is rooftop technology. The access to state-of-the-art yet cost-effective technology is particularly appealing to hundreds of smaller tenants that Arden serves throughout its portfolio. Smaller companies that are unable to afford their own satellite access, can take advantage of Arden’s rooftop antennae site to enhance their own bandwidth capability and communications link. The result is that small and mid-size firms can greatly improve their access to cyber-age services like video conferencing with personal computers; high-speed desktop Internet access; unlimited voice lines; faster data lines and the full range of personal communications services such as e-mail; cellular phones and paging systems.

Industry experts estimate that the wireless consumer market will grow approximately 20% annually over the next seven years and that more than 250,000 transmission sites will be in use by the year 2002, with most new sites located on existing vertical structures.

Another example of the use of technology is reflected in web sites – Arden’s is a multi-level data site that will not only serve as a vehicle for corporate information, but also as a powerful leasing tool. The site, which will launch in October, carries in-depth information on all of Arden’s office buildings from the Central Valley to San Diego. Leasing brokers, prospective tenants, and corporate relocation executives can log-on and review the full scope of Arden’s portfolio by square feet, submarket, and amenities which are updated daily to reflect the latest available space. The site’s comprehensive information, maps and photos will allow brokers to print out relevant data and pass it along instantly to potential tenants or deal directly with one of Arden’s leasing agents for the next level of inquiry.

Arden is also exploring the use of this site as a “virtual concierge” – a central point of contact that can assist tenants with a high-speed response to service and information requests. Our goal is to give tenants the fastest and most comprehensive menu of services on the market. We are aggressively pursuing every avenue to create an outstanding office environment that will assist our tenants to flourish in their core businesses.

The success and growth of tenants is a factor that every landlord welcomes, and Arden has put significant resources into assisting tenants to meet their expansion requirements. The fact that Arden has office buildings in every major submarket of Southern California means that most tenants can find additional space within Arden’s portfolio. The key for most tenants, however, is that Arden’s property managers work hard to stay abreast of a company’s growth before it occurs so that they can be proactive in recommending alternatives. Arden has also implemented systems that streamline the process of lease negotiation and move-in. Once you are in the Arden fold, we try to keep paperwork and the expansion process as simple as possible. Our objective is to make moving into one of our office buildings, a seamless and unobtrusive experience.

For tenants with more modest space requirements, Arden also offers an alternative that is fast becoming the wave of the future for consultants and small companies who want to keep overhead to a minimum. Arden has recently purchased Mini-Suites – a company that allows small tenants to lease their required space from a full floor layout with a wide range of support space. Mini-Suites’ support space includes common conference rooms, kitchens, corridors and meeting areas with a range of services such as photocopying, faxing, bookkeeping, travel and word processing. A state-of-the art “Centrex” telephone system is provided to enable tenants control over their own telecommunication needs. Tenants are allowed to lease on a month-to-month basis and are assisted in expanding or contracting their space as needed. Arden also has plans to make support space available to its conventional tenants who need ancillary common areas on a part-time basis.

The Mini-Suite concept is a distinct departure from the more expensive “executive suites” that offer receptionists, law libraries, support staffers and other features associated with a high-end professional office. The exploding market of independent service providers and start-up companies in Southern California’s robust economy has increased demand for no-frills, flexible space that is located outside the home but not at the level of a traditional office and overhead. The adaptability of Mini Suites enables it to act as an “incubator” for small companies that often become larger, direct tenants of a building as they grow.

For landlords that can afford to develop, the ultimate opportunity to meet a tenant’s needs is a “build-to-suit” office building or substantial redevelopment of an existing property. Among a handful of construction projects currently underway are the Howard Hughes Center in West Los Angeles and significant redevelopments at 1100 Glendon in Westwood and 535 Brand in Glendale. The Howard Hughes Center is a master-planned multi-use Class-A development on a 70-acre parcel overlooking the 405 Freeway. Arden has the opportunity to construct 1.3 million square feet office product, including build-to-suit projects from a two to three story, 80,000 square foot medical research facility to a 16-story, 330,000 square foot office building. Arden’s first building will be a 250,000 square foot, 10-story build-to-suit building that will break ground the first quarter of 1999. In Southern California’s supply-constrained office market, build-to-suits and larger redevelopment projects represent some of the few expansive blocks of space available to large companies.

For tenants large or small, the more sophisticated landlords of commercial office buildings in Southern California will continue to court and service tenants regardless of size. Whether a landlords’ or tenants’ market, the key for owners is to continue to develop innovative ways to attract and retain tenants and to anticipate the needs of new businesses as they develop. This is the approach that forges links between owners and tenants that withstand the test of time and the cycles of changing economies.

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Robert Peddicord is Senior Vice-President of Leasing with Arden Realty.

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