Costar in its “The State of the U.S. Office Market: Mid-Year 2010 Review & Forecast” reports that the U.S. office market has bottomed and is headed toward recovery.  Danburg Management, as a major player in the Boca Raton office market, sees this as great news. But what does that mean for local office tenants and to the commercial real estate community?

To start, Costar has emerged as the leading source of commercial real estate information in the U.S. A majority of the top national brokerage firms and institutions rely on their information, so we can assume this information is credible, so if Costar has spotted a trend, we can assume that there is something to it and a market turn has begun.

According to Costar, professional and business services added 360,000 jobs in the last three quarters and government workers increased by 290,000. Layoffs in the financial services and information sectors have only amounted to about 161,000 positions. While unemployment may still be rising in some sectors of the economy, the sectors that drive demand for office space are now growing. In addition, one of the effects of the current economic downturn is that developers have halted or delayed most of the new office projects. A report from Prudential states “A lack of construction, due to the lack of funding, could keep new supply from hitting the market for up to five years.” Costar believes the combination of positive absorption along with limited new construction will drop the national vacancy rate, currently at 13 percent, to 11 percent by 2013.

In Palm Beach County, which was more vulnerable to the downturn in the housing market, office vacancies are higher than the national average, but they also declined from 24.5 to 23.5 percent in the second quarter of 2010. Meanwhile, asking rental rates increased for the first time in six quarters. The Boca Raton market remains a bit behind the curve as vacancies increased slightly from 24.2 to 24.6 percent in the second quarter.

At Danburg Management we have always outperformed the market with a “hands on” approach to providing quality workplaces at an excellent value. We are therefore less susceptible to market fluctuations. Still, we understand that to compete in today’s market, we need to match the prices of some of our less successful competitors. If you need office or warehouse space, we are making great deals for quality tenants. Please call or e-mail for more information, or visit us at www.danburg.com.

At the moment, we remain in a strong tenant’s market. As a Landlord’s representative, I am seeing rental rates at a 25 to 30 percent discount off the highs of two to three years ago. But those rates, which had been in a freefall, have begun to stabilize. Still, some owners remain desperate to attract new leases.

My recommendation for tenants is to take advantage of today’s low rates and try to lock them in long term. I personally will consider shorter term leases in anticipation of future increases in market rents.  What may look like a good deal from a desperate owner of a distressed building could become problematic if that owner is unable to provide essential services. For example, what happens if an owner lacks the funding to repair a building’s air conditioning system? And what happens to your corporate image if your landlord cuts corners on property upkeep and landscaping ?

For landlords and tenants alike, credit is the key. As landlords, we are looking for tenants with whom we can develop long term relationships. We are willing to give great deals and expend funds on tenant improvements as long as we know that we will collect a fair market rent over the term of the lease. But tenants need to be careful that they are entering a relationship with a landlord that can provide the services and working environment necessary to keep their business successful.

If you are the owner of a successful business, it’s great time to take stock of your current and future space needs. For tenants who foresee the need to expand, there is the opportunity  to take on more space at a reduced rent. For those who will need less space, there is an opportunity to exchange current rent for future lease term, thereby reducing expenses.

At Danburg Management, we specialize in delivering top quality smaller office spaces from 350 to 7,000 square feet. We’ve also instituted our tenant connections program, where our tenants can share business opportunities to their mutual benefit.

Our company has been active in the South Florida market for 27 years and I’ve personally been active in the market for 25 years.  Feel free to give me a call, drop me an e-mail or comment on our blog. For many companies, our properties can provide the solution they are looking for. If not, we’d be happy to discuss your specific needs and point you in the right direction.