For decades commercial real estate companies (brokers and data providers) have published market reports which are completely useless for tenants.

Here is an example of what a typical quarterly office market report looks like from just about every brokerage firm or data provider:

Market Inventory Vacancy Sublease Net Absorption Under Construction Avg Asking Rent
Downtown 12,000,000 sf 24.6% 234,000 sf 320,000 sf 540,500 sf $19.75
Midtown 1,200,000 sf 10.9% 250,000 sf 120,000 sf 350,000 sf $22.35
Suburbs 3,000,000 sf 15.5% 185,000 sf -175,000 sf 130,000 sf $16.38

NONE of these statistics matter to tenants.

Tenants do not care about the size or vacancy rate of a submarket, or what last quarter’s absorption rate was….

What matters to tenants?

  1. Actual Rental Rates: Using advertised rental rates to lease office space is like using the MSPR to buy a new car.
  2. Typical Concessions: Where does the report say how much free rent the tenant can expect? It doesn’t.
  3. Possible Incentives: Where does the report say how much improvement allowance the tenant can expect? It doesn’t.

Using LeaseMatrix’s CompVault, you can record the terms of every lease proposal you analyze automatically, giving you more lease proposal comps than you’ve ever imagined. And these comps represent information that tenants would KILL to have.

Let’s look at an example:

You represent a tenant looking for office space in the 10005 zip code. Where can you find the terms that matter most to tenants (i.e. actual rental rates, free rent periods and TI allowances)?

CoStar? Nope.
Xceligent? Nope.

You’ll need fall back your own previous experience and maybe refer back to some recent proposals you’ve received for other tenants.

CompVault allows you to do just that, quickly.

CompVault Example Data

CompVault Example Data

Notice that CompVault not only provides previous lease proposals within the 10005 zip code, it provides the average within this comp set. In the example above, the average is:

Size Rental Rate Lease Term Free Rent TI Allowance
Average 11,092 SF $40.69/sf base 6.9 years 2.4 months $48.75/rsf
13% loss $44.52/sf effective 82 months 0.38 mos/yr $7.63/rsf/yr

This is information tenants LOVE!

So, stop giving your tenant rep clients information they don’t need (off-the-shelf market reports and surveys) and start giving them the information they are begging for!

Login to view your own CompVault, or sign up to try LeaseMatrix for free for 30 days, if you haven’t already…

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6 Responses to Why all market statistics reports are total B.S.

  1. mcobb1600 says:

    Comps should, of course be the #1 data point on any tenants list, but they SHOULD care about absorption, etc. Comps are a snapshot- vacancy and absorption trends are predictive of future comps

    • LeaseMatrix says:

      Mike, thanks for stopping by.

      I have one question. As a practitioner, why try to predict market trends using a secondary indicator which has little to no statistical significance and is only updated every 3 months, when you can track a primary indicator more frequently?

      Providing the market’s most recent absorption rate provides absolutely zero value to the tenant, as they have no frame of reference to the relative magnitude of this statistic. They don’t know if 100,000 sf of positive absorption means that the market is hot, cold, or status quo.

      From a pure reporting standpoint, tracking absorption has several huge pitfalls, particularly if the a backstory to that number is absent. For example, absorption for a particular submarket could be 500,000 sf for the quarter, but that entire square footage could be represent a new enormous Build to Suit coming online. Or maybe the absorption is significantly negative because a large tenant went bankrupt, but the landlord saw it coming and already has another tenant waiting in the wings. Without the backstory, absorption is a snapshot in time and is completely useless to tenants.

      Without the backstory, the next best thing is to consider the quarter-over-quarter trend, in order to get a handle on historical magnitude. But trying to predict rental rates using a quarterly absorption rate is like trying to predict this week’s weather with Q4 2012’s weather data. Why do it when more current, statistical significant data is available?

      This is where CompVault comes into play. It has the following benefits:

      1. it allows brokers to track only the most important data (i.e. rental rates, free rent periods and TI Allowances) directly, rather than indirectly
      2. it allows brokers to have more up to date data to better communicate market conditions to their client, rather than relying on 3 month old data to predict rental rate movement

      I hope that these points are intriguing enough to you to entice you to give LeaseMatrix a shot.

      My best,
      Dominic

      • Mike Cobb says:

        There is no question that comps are an important front line tool- especially on the tenant side. They are the most important tool for evaluating an individual transaction or building.

        Absorption has enormous statistical significance when looked at over time, and with an understanding of the tracked market. Comps can be a bit of a trailing indicator in my opinion while, as I said, absorption is predictive. I get more of a sense (guess..) of what will happen 2-3 quarters out from absorption and a few other data points than I do from comps.

        That said, we need good comp data- it’s core to our business and our clients success. Intrigued to learn more about your service.

        • LeaseMatrix says:

          Thanks Mike, I do agree, over a longer period of time the absorption trend is important. But because the tenant is only in the market once every 3, 5, 7, 10 or 15 years, the metric is a difficult one to use (in my opinion).

          That said, this example is one great reason to engage a tenant rep broker; a good one will have a “sixth sense” when it comes to deciphering this type of indirect indicator.

          Give me a call (704-750-1031) or shoot me an email at support @ leasemx.com if you wanna chat more about LeaseMatrix. Would love to have you come aboard.

  2. Absorption is an important statistical indicator. Comps are important as well but its more about the deal and market terms when you are actually in the market. Absorption is a function of two factors, supply and demand driven by office using employment and leasing activity typically lags labor trends by 2-5 months. You are right that the tenant is only in the market every 3,5,7,10 years, but often expansions come into play. Furthermore, Real estate decisions have to made sometimes months or even years ahead of lease maturation, so absorption trends are important to evaluate. While we have recently gone thru a recession and many markets have plenty of available space, this isn’t the case in all markets. Space decisions are not only about cost, but also what space is available, what will come available and what new space might be delivered to the market. Demand drivers can vary from submarket to submarket particularly in a big metro. While it is extremely valuable information to know what terms Landlords are currently offering it is only part of the equation.

    • LeaseMatrix says:

      Coy, thanks for stopping by. With the appropriate amount of background information, absorption can add some additional color to market conditions and momentum.

      I think we’ve kinda went off on a tangent, though. The post wasn’t about absorption, it was about off-the-shelf market reports.

      If a tenant had to pick between being provided with lease comps or a quarterly market report, my money is on the lease comps.

      While the title of the post was a bit over the top, its underlying purpose was to evoke thought and conversation.

      Thank you (and Mike) for taking the time to add to the conversation.

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