There are many considerations that an office tenant should consider when they are looking for office space for rent in Dallas. Sometimes a client will contact us and say that they are looking for office space and it becomes apparent that they don’t have a good understanding of what in necessary to locate the ideal office. There is more to a good office space search than finding an office building with a space. With the proper preparation an office tenant can save time and valuable employee resources.
The perfect plan works perfectly when it is perfectly planned. Before you start calling the numbers on listing signs it is a good idea to think about the ideal location for your new office. Don’t fall into the trap of searching a wide area of Dallas only to decide that you are interested in a six square block area of Dallas. I understand that you want to look at competitive rental rates in other markets but if you know that there is only one market you will consider focus on that market.
If the rental rates in market A are $20 per foot and the rental rates in Market B are $30 market A will not drop their rates to match market B. The reason is because the demand for each market is different and most likely the tenant mix. The amenities in the more expensive market are perceived to be worth the extra expense and the landlord knows that they will have tenants willing to pay the higher expense. Therefor they most likely will not be willing to drop their rental rates.
Office space rent Dallas is directly correlated to the perceived value tenants see for a given market. Sometimes a tenant may make the mistake of looking at a building and seeing that it is thirty percent vacant and assume that the landlord would be in a better position to take their lower rental rate offer. A tenant needs to understand that there is more to the landlord’s decision than immediate cash flow.
By accepting a below market rental rate a landlord could have a dramatic effect upon the overall value of their office building. Office space for rent Dallas value is directly related to the Net Operating Income of the building decided by the current Market Capitalization Rate. The value of an commercial real estate investment is based upon its income. Even more important is that the entire assumed income stream can be based upon the most recent leases executed by the Landlord.
So if all the leases are valued at $20 per foot and the landlord decides to sign the most recent leases at $17.00 per foot the other leases could be discounted to a lower value. This can have a dramatic effect on the value of the asset. If the building is 80,000 square feet and the overall value of the income stream is reduced by $3 then at an 8% cap rate the value of the building could be reduced by $3,000,000. In our example the total vacancy is 24,000 square feet. If the lease is an average of $17.00 per foot($3.00 below market) and the operating expenses are $9.00 the total income for the building prior to debt service is $960,000. I am assuming that there is no construction allowance.
Do you see that the potential $960,,000 of income is less than the $3,000,000 reduction in the value of the investment. This is a simplified version of why a landlord may decide to leave the building empty and reject your offer. It would be better to wait for an additional $360,000 in income and maintain the extra $3,000,000 in property value. Office space for rent Dallas is more than just a monthly income stream it is how the leasing decisions effect the overall value of the investment.