Predicting the Future

No one can accurately predict the future. But we still need to be strategic about it.

In office leasing, this means maintaining an awareness of how your leases relate to the market, both now and in the future.

This is especially important during the last 3–4 years of a lease (with sensitivity to scale). The graph below compares the cost of restructuring an existing lease early to the cost of riding out the existing lease and doing a new lease at the expiration of the term.

The gold line tracks projected market rent, the dashed red line holds today's contract rate flat, and the blue line (right axis) tracks comparable supply. The green line shows the blended effective rent of restructuring now, phased in against the free rent and TI package negotiated for the deal.

Importantly, sensitivity to market scenarios is also layered in. For example, what’s the likely performance of the rental market for comparable space over the subject period? Will rents rise or fall? Will supply increase or decrease?