As for the rest of commercial real estate's postrecession constitution, expect a "new normal" premised on lessons learned over the last year of pain, said Jim Mazzarelli, regional director of Liberty Property Trust, a major landlord in this area, with about 10 million square feet of office space.
For one, landlords will not assume that tenants, especially established, high-profile tenants, are forever. As a case in point, real estate professionals refer to this year's dissolution of the venerable Wolf Block law firm, which added 175,000 square feet of vacancy to Philadelphia's Market Street West submarket.
"The days are gone when you would [assume] a major law firm would be around for 60 years and give them $10 million in [building-improvement] capital," said Dave Campoli. He is a regional vice president for HRPT Properties Trust, a national real estate investment trust with nearly 5 million square feet of commercial office space in Philadelphia.
In the new world, Campoli said, such a law firm likely will have to put up a portion of the cost of any site improvements it wants.
Tenants will be choosier, too, he said, doing more vetting of landlords to verify whether they have the financial foundation to fulfill promises made at the time a lease is signed.
That will lead to what Liberty Property's Mazzarelli calls "flight to a stronger brand." It's a pattern he contends will dominate commercial real estate decisions when the economy picks up.
Traditionally, economic downturns have triggered so-called flights to quality in the office market. That's when tenants take advantage of depressed rents and move to higher-end buildings whose rents in boom times were beyond their budgets.
