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Commercial real estate growth will bring more lease negotiations

The commercial real estate market forecast shows a continual upward hike with promising potential throughout the next year. With the positive economic outlook, the need for well put-together leases also increases.

According to a new report, the commercial property market around Phoenix appears to show promise, especially for those in the apartment business. A survey of real estate brokers forecasted the commercial real estate market for nearby university researchers, covering rentals for offices, industrial use and retail. The surveys upheld Phoenix’s standing as an investor’s recovery market.

The survey predicted that rents in the area would increase between the second and third quarters — adding onto the 7.5 percent increase already cited in metro Phoenix over the past year. New apartment developments should help stabilize the rent rates, with more than 7,000 luxury units forecasted for next year. Population growth and continuing demand for affordable housing still remains, showing promise for affording housing developers in the coming years as well.

When the market has a positive forecast and growth is imminent, it is all the more important for land and building owners to form proper lease agreements. The cost of litigation or disputes between tenant and landlord during a peak period can be extremely costly, both financially and time-wise. With no standard agreement for commercial leases, negotiations are commonplace. Rent rates and increases are one of the most commonly debated issues.

Rent considerations include landlord payment for utilities, insurance, taxes and repairs. Additionally, including an annual rent increase clause is one way to assure a profitable relationship. More terms that often arise in commercial lease negotiations include the length of the lease term, defining who is responsible to foot the bill and hire outside work for necessary improvements and renovations in the space and outlining the permitted uses of the space.

Source: Arizona Capitol Times, “Forecast: Valley commercial real estate to improve slowly in 2015,” Linxiao Li, Oct. 8, 2014

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