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How Tenant-Favorable is Your Market?

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Just how tenant-favorable is your market?

Do you know just how tenant-favorable your office market is? Did you know that every market and even submarket has distinct supply and demand market indicators which, when analyzed, help determine whether office leasing conditions favor landlords or tenants?

The Savills Studley Landlord/Tenant Favorability Ratings Map

Savills Studley has created a unique mobile and interactive market analysis map to help our law firm clients better understand the current favorability temperature in their markets.

This interactive map compares office market fundamentals and changing office market fundamentals across all U.S. office markets, and more than 2,000 submarkets, to determine where each market and/or submarket ranks on the tenant-favorable vs. landlord-favorable spectrum.

Click here to access the interactive map.

 

Decoding the Map

Two key factors that reflect the supply/demand balance point and indicate tenant or landlord favorability are vacancy rate and asking rent.

  • In general, when office vacancy, meaning the percentof unleased office inventory, is increasing and asking rents are decreasing, a market is considered more tenant-favorable.
  • Conversely,if vacancy – or the number of tenant space options – is decreasing and owners are increasing the amount of rent they are asking on a price-per-square-foot basis, the market is considered more landlord-favorable.

We use weighted information to score each market and submarket on a scale of 0 (tenant-favorable) to 5 (landlord-favorable). Areas shaded blue to green are trending more towards tenant favorability while those shaded yellow to red are trending more towards landlord favorability.

 

What's the Impact?

In a tenant-favorable market, law firms can expect to see more space options available, more aggressive landlords competing for their tenancy, and as a result, more economically favorable and flexible lease terms. A few key characteristics of tenant favorability include:

  • Lease terms at or below market rental rates
  • Above average concessions like rent abatement, tenant improvement allowances, and in some cases, a greater landlord propensity towards buying out an existing lease in order to secure tenancy
  • More options such as termination or contraction options and renewal options at equally favorable terms
  • Negotiating in a tenant-favorable environment, you may see more law firms relocating, often to higher-quality space and right sizing without having to pay much more overall once all concessions are factored in. You may also see more firms renewing or restructuring leases early, well ahead of lease expirations, in order to capitalize on current favorable conditions.
  • Options remain for law firms negotiating in a landlord-favorable market. However you may see some slightly different characteristics and tendencies:
  • Slightly higher tendency to renew instead of relocate
  • More average, or market standard, rental rates and concession packages
  • Fewer options
  • Less flexibility

Available space is more limited in a landlord-favorable market. Owners know the lesser availability and will use that to negotiate terms more in their favor than ours given the leasing market conditions.

We hope you find our favorability map tool useful and check back often to stay up-to-date on the latest conditions in your market!

Note on Methodology* For each of the markets and submarkets included on our interactive map, Savills Studley compares and weights the following factors to calculate a market or submarket score: Current vacancy rates (25%); Two-year change in vacancy rates (25%); Current gross asking rents (25%); Two-year change in gross asking rents (25%)



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