Landlords in the Houston market should be concerned. Before COVID, Houston was dealing with a soft office market, with stagnant or declining rental rates in certain submarkets, large enterprise-level companies passing on Houston and migrating to other major Metro areas, low new construction, and historic levels of concessions.

Our forecast from JLL even speaks of things being in a state of recovery “for the foreseeable future.” Not only are these levels of concessions historic, but we are also seeing some landlords actually take on larger deals that may result in them taking a loss on the deal just to capture some much-needed occupancy within their buildings.  

Here is an example of a ‘negative rent’ scenario that our team was able to negotiate recently.

One of our clients was in desperate need of updated space. Employees had been complaining that the layout was hurting productivity; management was complaining about paying for space they could not utilize effectively, and the location just did not fit the image and general energy from the company.

The problem was they had a little more than five years left on their lease. They brought this problem to us and asked if there was anything that we could do. Our team has over 19 people, and combined with our JLL office, we represent a dominant portion of the tenants within most markets in the Houston area.

Because of our networks and ongoing deals, we were able to identify a landlord that we knew had a higher vacancy who was willing to give some hefty upfront concessions to get a deal done. Once we brought this information to our client, they liked how modern the building was and was interested in exploring what options would be available from this landlord.

So this is how things turned out for our client:

• They got 5 years of Abated (Free) Rent, so they did not have to pay double rent. 
• The rental rate was lowered well below market, so low in fact that the final rent numbers were LESS than the actual cost to lease the space out to them.
• They were able to design a state-of-the-art space that met their requirements.
• Their overall footprint was reduced from 200,000 sq. ft. to 100,000 sq. ft.

So overall, our client was able to save more than 50 cents on the dollar in a more modern space that was built out just for them. Now their employees are more productive, space is more efficient, and management was able to take advantage of this particular opportunity in the market.

We try to tell people that every deal is different, and this is a great example of a tenant taking the time to survey what opportunities that market presented, then acting on a good opportunity. Too often, tenants are driven by deadlines like lease expirations which severely limit opportunities in the marketplace because they are faced with being able to only transact based on the opportunities within a much smaller time frame.

If you want to see what the market may have available for you, set up a call or meeting with us this week so that we can share what type of deals are going on right now!