REITs’ Fight to Reduce Office Space Vacancies
Target is exiting. Blackberry has downsized. And with the office space vacancy rate being the highest it has been in several years, office REITS are getting desperately creative.
In some ways, it is no surprise that, despite public and media expectations, REITS are making every effort to attract potential tenants to their available and soon-to-be available office spaces without making any drastic changes to the spaces themselves or their lease rates. Instead, they are getting creative in promoting their available office spaces by simply advertising the added value or “perks” of the office spaces themselves. The most common added value cards they pull out are the “transportation” and “flexible office space” cards.
For example, REITS with office spaces in the Toronto’s Airport Corporate Centre area, which is where Target’s Canadian offices are currently located, promote easy access to and from the airport and other public transportation through shuttle services. Other office spaces located in Oakville and even Kitchener-Waterloo would promote close proximity and easy access to major highways. The promise of new inner-city rail systems, such as the light rail transit system (LRT) scheduled to be active in 2017 in the Waterloo region and the one currently under construction in Mississauga are also big features put out by the REITs to get those office spaces filled. Other office space locations that may or may not pull the “Transportation” card are advertised as open spaces which will allow tenants to easily create the office environment that best serves their corporate image and needs.
Is it working? Well, according to some REITS, the strategies are generating interest in their vacant office spaces, and newer spaces are filling up, but sealing the deals will be based primarily on what potential tenants actually want out of an office space and what they see as the best bang for their buck.
Will lease rates eventually be reduced? I think that given the tenacity of the REITs, that option would be the absolute last resort for them to consider.