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Boca Raton News


Date ArticleType
10/13/2020 General
Commercial Real Estate Industry

Commercial Real Estate Industry Consolidation: What this Means for Office Tenants

The best leases for tenants are negotiated with leverage. When commercial properties in a given market are owned by fewer landlords, and leased by fewer real estate companies – who has the leverage? How does this affect you - the tenant?  I’ll share some concepts that may help illustrate what this may mean for you and your office lease terms.

You may or may not be aware that commercial real estate is still trading fast and furiously these days.  Real Estate Investment Trusts, insurance companies, pension funds and private investment firms are actively buying and selling commercial investment property. As an example, Industrial real estate industry leader Prologis has been acquiring other major Industrial investment companies, such as Liberty Property Trust semi-recently. Liberty owned several commercial buildings here in Boca Raton. Other transactions such as this have taken place over the past 12-months.  The trajectory of this trend is anybody’s guess.  This transaction activity may continue for two years - or two days.

In recent years in Boca Raton, a prominent developer/landlord acquired a near monopoly of the Class A office towers at record purchase prices – proforma’d with high lease rates based on a robust market.  As such, this landlord immediately increased the Base Rates by 28% with one swift spike. Fortunately for the landlord, tenants have been signing leases at these increased rates; however, I don’t know how long this will continue – as real estate is cyclical in nature.

You can see how consolidation may be adverse to commercial tenants.  Also, as more institutional entities such as insurance companies acquire commercial property, we may witness a more stalwart and less entrepreneurial approach – as landlords concentrate on maintaining asset value and shareholder return over immediate cash-flow and occupancy. For example, sometimes my clients need flexible lease terms – which may not be accommodated because of overriding underwriting and lender demands. These days, the COVID-19 factor also shadows lease commitments, of course.

Another facet of industry consolidation that may affect tenants is the commercial real estate brokerage consolidation trend. Recently, international brokerage Jones Lang LaSalle has been courting Cushman & Wakefield to roll them up into their company. Mega-brokerage Jones Lang LaSalle has also been acquiring other companies such as HFF, Cresa South Florida and others in recent years.  When this occurs, several things may happen. As an example, a commercial real estate company that handles the leasing for multiple properties in a market may be the Landlord-agent company for several of a prospective tenant’s top options.  If a tenant is simultaneously negotiating three options with one landlord and/or one commercial real estate company, they will see the odds as narrow that you’re working on additional 3rd party properties as finalists. That understanding can only shift leverage to their side.  Another possibility is that if a Tenant Representative works for one of these large companies that also represents buildings/landlords – there is a chance that objectivity may be compromised ‘under the roof’.  Serious professionals will try to not let that happen, but the entire transaction is still ‘under the same roof’.

An independent tenant representation company that represents no landlords at all, but has access to all properties, inherently provides the most credible, objective advice to tenants – and often personalized, responsive service and results. Also, a Tenant Rep broker that has access to every property with no obligations to any, whose fiduciary responsibility is only to you the tenant, and is a local expert - proficient in Tenant Representation, will serve you well.


As these mega-landlords and mega-brokerages add properties and agents, how will your interests be best served?  How will you know that you’re receiving purely objective advice?  Sometimes the difference between a favorable lease and one filled with potential pitfalls hinges on credible, objective representation. At Stagman Commercial, we treat your transaction as if it were our own office lease.

Stagman Commercial Real Estate Advisors ITRA Global
JTS@StagmanCom.com  561-376-5100