Strong absorption can be created in slow markets.
As companies began leaving what was once the hub of Telecom Valley in Petaluma, Calif., numerous vacancy signs littered the empty buildings. Despite these vacant properties, builders continued to build, wooing new tenants away from existing landlords by offering modern office environments. And yet, one existing business park, the Petaluma Marina Business Center, also in Petaluma, saw vacancy rates drop from 43 percent to 30 percent in just one year. This success was based on a collaborative effort between the park’s landlords and an innovative brokerage team from Orion Partners, a revised marketing strategy, and an expanded tenant search beyond the local market.
When initially joining forces, the landlords and the brokerage team agreed that the first step to establishing a revised strategy was to review the market’s history and identify what triggered the abundance of unused space. The rush of large companies claiming their stake in the new Telecom Valley set off a building frenzy in the 1990s due to their demand for a plethora of employees. But now, with these large companies gone, the competition for today’s tenants came from designer buildings filled with perks and an increased inventory of 30 percent over the previous year. Finding a new type of tenant as well as a new marketing approach was a vital strategy for this project.
To find speculative tenants, the collaboration designed a candidate profile by analyzing the market and all the local leases completed during the past year. Their findings confirmed an initial theory: The newest tenants consisted of small companies and individual users. These tenants sought spaces of 2,000 square feet or less instead of the previous tenants who needed 20,000 sf. The profile also showed high demand for offices in the 300 sf to 500 sf range, meaning that the new tenants would most-likely be in need of executive services such as shared conference rooms, shared copiers, furnished offices, and reception services.
Armed with this knowledge, the brokerage team set out to familiarize themselves with every executive office suite provider in the area. Finding nothing, they knew they had discovered their unique selling point, which was to create executive offices to meet the needs of small tenants. The team recommended this strategy to the park’s landlords, who ultimately declined. The landlords’ core expertise was in running a business park, not serving a multitude of individual office users with phone assistance, provide IT support, conference rooms, and administrative services.
The brokerage team persisted, knowing their strategy was the right way to go. Even though smaller tenants were the ultimate goal, the team identified and approached larger executive office firms in nearby cities who had the resources and capabilities to meet the needs of small businesses. After presenting their data and findings about the unique market opportunity, the landlords eventually changed their minds, and the brokerage team successfully recruited an executive office firm who signed a 17,000 sf lease.
The executive firm and the brokerage team partnered together to maximize marketing efforts in recruiting tenants. Using one another’s momentum, the firm took their services to the new marketplace while the brokerage team utilized their marketing practices to continue to attract tenants too large for the executive suites by cold calling and direct mail. The tandem strategy worked and resulted in a decreased business park vacancy rate of 13 percent in just one year, showing that it is possible to achieve positive absorption in a slow market.