Commercial real estate owners and property managers are seeing a shift in the balance of negotiating power to tenants as rental markets dry up due to the economic downturn. To combat rising vacancy rates and weak to no rent growth owners will be in heavy competition with each other in seeking ways to attract and hold viable tenants.
“We expect that many lessors of commercial office space will re-examine their policies relating to rental packages as they weigh the advantages of lower profits versus no profits or a loss,” says Mark Bassil, vice president and co-founder of MAiSPACE, a modular office furniture manufacturer based in Mt. Olive, NJ. “One of the ways they can increase their competitive advantage is to offer fully furnished workspaces regardless of the amount of floor space being leased. Traditionally,” Bassil explains, “landlords were not interested in furnishing spaces under 50,000 square feet, and if pressured to do so would make it uneconomically attractive in terms of increased rental costs. This effectively put the tenant in charge of furnishing the space.”
Today’s modular office furniture systems from manufacturers such as MAiSPACE combined with attractive lease packages present a strong case for landlords to relax their position on furnishing leased space. “Landlords may also be able to take advantage of substantial tax benefits under Section 179 of the Economic Stimulus Act, and may qualify for lower real estate taxes,” Bassil says, adding that “building owners should fully discuss tax issues with their accountants.”
Benefits of Leasing Systems Furniture
A major advantage of a lease, whether undertaken by a landlord or a tenant, is to conserve working capital, a major concern in a tough economic climate. “Our lease calculator demonstrates this quite clearly,” Bassil says. “Take as an example fitting out 12,000 square feet for a 60 month lease. Upon qualification a landlord can lease everything required by the tenant – including furniture, accessories, delivery, installation and other soft costs – for $3,747.60 per month or $0.31 per square foot. This example,” he explains, “is based on the MAiSPACE $15 per square foot installed price, which as an outright purchase would be $180,000. This is faster and easier than a bank loan and just as competitive.”
Adding $0.31 or even $1.00 per square foot to a tenant’s lease is not particularly painful, and can be promoted in several ways, according to Bassil.
“For example, landlords can work with prospective tenants along with our designers and installers to create a beautiful, custom, ergonomically correct office environment incorporating panels in clear or patterned glass, painted, fabric and wood grain finishes; curvilinear worksurfaces with cascade edges, task and executive seating, fixed and movable tables and storage facilities, and a high capacity local area network,” he says. “Workspaces from 6 x 6 cubicles to conference areas, private offices and reception areas can be move-in ready within 4 to 6 weeks of placing an order. Prospective tenants will appreciate the landlord’s attention to their needs and fast installation as well as the fact that our products are GREENGUARD indoor air quality certified.”
Accommodating Moves, Adds and Changes
Moves, adds and changes (MACs) in office layouts are a fact of doing business. By its very design, modular office furniture systems are flexible systems, meaning that landlords and their tenants are not locked into a floor plan that is difficult or costly to change. “Our MAC-friendly stackable panels enable the construction of walls up to 14 feet in height that are fully capable of supporting bins, shelving and other furnishings,” Bassil says. “Modular floor-to-ceiling full wall offices, conference rooms and reception areas are attached to floors and ceilings with non-destructive fasteners. All furnishing components including our plug-and-play cabling management system are designed to be reconfigured virtually overnight by on-site maintenance personnel. The noise, dirt, distractions and disposal challenges associated with traditional fixed wall offices do not apply to modular systems.”
Rugged construction backed by lifetime warranty and guarantee against obsolescence goes on the plus side for landlords considering fully furnished offices. “When leases are up and tenants move on, the added value of offering fully furnished workspaces should help immeasurably in writing a new lease,” Bassil says. “Modular movable full wall systems ease the task and lower the cost of either subdividing into smaller spaces or opening additional floor space to meet the needs of new tenants.”
Cost of equipment$300,000.00
Section 179 deduction250,000.00
50% bonus depreciation on balance25,000.00
Regular first year depreciation deduction @ 14.28%3,750.00
Total first year deduction278,750.00
Savings assuming a 35% tax bracket97,562.50
Lowered cost of equipment after tax savings202,437.50
“Cash, lease or finance, companies contemplating acquiring new office furniture systems can take advantage of Section 179 deductions along with our extremely competitive pricing,” Bassil says.