Uncovering hidden space is crucial in a tight market

Real Estate Weekly, Oct 25, 2000 by Susan Kahaner

In today's market with space as scarce as it is, brokers are being forced not just to sharpen their negotiating ability, but also to hone their investigative skills to uncover hidden opportunities for their customers. Since a deal on a prime block of space can be made before the availability even reaches the open market, providing a tenant with an early information edge has become a precious, even crucial, selling point. Online listing services are certainly helpful and indicative of technology heading in the right direction, but the information they provide can be outdated in 48 hours. The real-time space race demands that brokers become creative in their search methods, and dig deeper into the market's inventory to stay ahead of the feeding frenzy.

Hidden space can be found in any number of nontraditional ways. A savvy and astute broker will be able to glean all sorts of meaningful indicators by scrutinizing all the business media outlets - from CNN, CNBC, and MSNBC to the Wall Street Journal, Business Week, and Forbes. In time, the factors that precipitate change will become easier to identify and will enable a broker to anticipate tenant expansions, retractions, and/or consolidations. Business news often translates quickly into business itself, and those first to act will benefit most.

For example, while numerous success stories emerged out of Silicon Alley, disappointing third-quarter corporate earnings reports were coupled with a growing number of troubled or failed start-ups. Many companies, caught up in the optimism and excitement of a booming economy, let their overly aggressive business plans exceed their practical limitations. Now, their failures will undoubtedly reveal space availabilities with real value in the next year. More viable tenants will reap the rewards of new space that has already been infused with capital, infrastructure, and high design standards by tenants, but only if they get the jump on everyone else.

Another trend to watch in this tight market is the increasingly common practice for expanding firms to warehouse space for their future needs. These firms may well offer shorter-term subleases at a discount. Opportunities like this must be anticipated in advance of their initial public exposure. Look for a tenant that signs a deal for more space than the market would seem to dictate it needs. Chances are the tenant will be looking to sublet some of the space before it has the chance to fully grow into it.

Finally, it's important to utilize the brokers around you as resources. While the logistical tools for communication and collaboration vary from firm to firm (there's a big difference between sharing the wealth of information among 15 brokers compared with 500), examining problems from different perspectives and the unique views of other brokers will often provide direction to a solution or alternative. Networking with agents, even researching a farfetched lead, could unearth new opportunities that might provide real value and new space that previously may not have surfaced.

No one knows how long the space crunch will last, but the high demand is unlikely to subside anytime soon. Now more than ever, brokers and tenants who are about to engage the market would be wise to begin their planning early so that if a good opportunity surfaces, they will be poised to act.