To lease or not to lease?
April 28, 2009
Right now is a strange time in the commercial real estate market.
Businesses are going bust and vacating their spaces. Casa Bella in Redstone, Café Sabor in Quarry Village and The Packaging Store on Bonanza Drive are three recent casualties of the recession.
But new businesses keep moving in and holding grand openings. Molly Blooms, The Game Hub and Massage Envy all opened their doors this April at Kimball Junction.
Merchants are bragging that they’re able to renegotiate their leases with landlords desperate to keep spaces filled. Yet swaths of Main Street, Bonanza Drive and other commercial areas sit empty as owners wait out the hard times instead of lowering rates.
Bill Martin, managing partner of Commerce CRG, believes these contradictions exist because Park City’s commercial real estate market has hit the proverbial "bottom" and is on the upswing.
There was no boosterism in his voice during an interview Monday. Martin was sober about the market. He acknowledged that all properties are suffering and some are seriously stressed. With vacancies everywhere, he hasn’t been able to determine a trend, he said.
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But there is good news that’s being drowned out by the bad. All of the new businesses opening this month suggest entrepreneurs waiting to get the best rates on a space have begun to act, he said.
"Lease rates have reduced to a level that is a little more affordable and people are taking advantage of it," Martin explained. "There’s a tendency in this town for people to wait for what they think is the very bottom, and I think we’re at bottom."
A lot of people are coming up from Salt Lake City to look at spaces, he said. Anyone who’s thought of opening a business in Park City is realizing that now would be the time.
That’s if they can survive.
Steve Sala, chief financial officer for Santa Fe Partners developers of Quarry Village said he’s seen lease shoppers with weak business plans. They know landlords are out there willing to rent space at any price and are taking big risks.
Sala said they’re not willing to play that game.
"If someone comes in with a blue-chip financial statement, they’re going to get better terms," he said. "But we’re not going to give someone half-off just to bring in a body."
Pyramid Group, the company that oversees the business park on Bonanza Drive that houses Einstein Brothers Bagels and Spencer’s Smokin’ Grill is taking the same approach.
Near The Packaging Store, the spaces previously occupied by Wireless City and Photoworks both sit empty. Sharon Stear with the company said they’re almost ready to fill one of those.
"We’ve been doing business as normal: no concessions or special deals. We offer five-year lease agreements," she said.
Bob Murphy, owner of Souperman in that complex, said he’s heard the same from his neighbors who tried to renegotiate. He had a much different experience in Heber, though.
Murphy said he recently opened a second store in Heber and got a great deal because his landlord was just excited to get someone in.
Martin thinks that’s wise. If a start-up can get a deal on rent, they have a better shot at surviving the recession and being a part of the community’s economic recovery.
Sala said he doesn’t disagree with Martin’s optimism, but prefers to examine everything on a case-by-case basis.
If a tenant has a good plan for surviving the down time and needs a deal or deferment to get through, he’ll consider it. World Bazaar Outlet was in a similar situation; the owner planned to go out of business, but reworked his business plan and gained Sala’s confidence.
"We work with people whenever possible and we’ll work with all our tenants who are struggling but within certain limits," Sala said.