Commercial
Market Trends
The
party's not over, just piping down
BY RICHARD
C. STANLAND JR., CCIM, SIOR
Industrial
and office practitioners around the country are reporting a slowdown,
though slight, in the absorption of space among dot-com and other
Internet companies, a group that has been one of the demand drivers
for both office and industrial space in recent years.
Last
spring's capital market decline slowed the growth of Internet companies,
resulting in less growth in space absorption by those tenants.
But
don't fret. The Internet economy is just beginning its long-term run-up.
That was the clear message sent in June to more than 2,500 people
attending Realcomm 2000, the technology and commercial real estate
conference produced by the Society of Industrial and Office REALTORS®
and The Jamesan Group.
What
the market is experiencing now is the pause, however wrenching for
dot-com shareholders, that will allow the new economy to regroup on
more sustainable footing. The commercial absorption forecast for the
next several years sees a few percentage points of decline in office
and industrial space take-down. But it shouldn't be catastrophic.
One
reason steady absorption will continue is that telecommunications
companies are taking up the dot-com slack. Telecoms of all stripes
are entering many markets with a huge appetite for space as they lay
down the backbone for the information age, installing switches and
servers and setting up back offices and call centers.
In Columbia,
S.C., for example, the newly merged Verizon wireless company (combining
Bell Atlantic and GTE) is negotiating to double the premerger 70,000
square feet the company had taken last fall in an upscale but struggling
shopping mall. Verizon is using its portion of the shopping center
as a call center, but shoppers don't even know they're sharing the
building.
How
can real estate professionals best serve telecom tenants? A recent
meeting of SIOR chapter leaders outlined the needs of telecoms and
dot-coms.
Here's
what they reported:
- Like
dot-coms, telecoms need extensive broadband, fiber-optic wiring
and backup power sources to keep their networks online, no matter
what.
- Dot-coms
want short lease terms with "out clauses" of one, two, or three
years, but telecom tenants want longer leases--10 years is common.
- Telecoms
are accustomed to paying for build-outs that incur substantial cost
but add no value to a property, something it often takes some educating
to get dot-coms to do.
- Telecoms
rarely need letters of credit or advance rental payments to overcome
the lack of credit history common among Internet start-ups.
- Telecom
tenants are so eager to secure long-term leases that they've begun
reviving attornment agreements, whereby the tenant's lease survives
any eventuality, including landlord bankruptcy, foreclosure, and
sale of the property.
Although
the new economy is still a relatively small part of the $8 trillion
U.S. gross domestic product, its impact is widespread. In 1999, Internet-related
employment totaled 2.48 million. That's at least double the workers
in the real estate industry, according to the Center for Research
in Electronic Commerce at the University of Texas at Austin.
A commercial
real estate professional who commits to staying abreast of changes
in the field will be in the best position to capitalize on this growing
market.
Stanland
is president and chairman of the board of the Society of Industrial
and Office REALTORS®. He's also vice president of office
& industrial leasing for Edens & Avant Inc., Columbia, SC
