What does it mean when I see Asking Rent: WITHHELD?
Asking Rent: WITHHELD
We don’t see it all the time. But we see it a lot and it feeds on itself. It’s the practice by landlords and their brokers to not set an asking lease rate on their property.
Why do landlords and brokers do this?
Historically throughout the US, landlords have given tenants a starting point by way of their asking rates. It’s a sticker price to some extent. But whether it’s a NNN asking rent or FS, whether it’s quoted yearly or monthly, and no matter the city or state, it is a customary starting point. And frankly, it benefits everyone. It’s good to know if you are looking to spend $50/RSF/YR, that you aren’t touring and considering $70/RSF/YR space. That saves everyone time.
The real estate industry would have survived without asking rates. But asking rates have been the custom. Over the years our experience has been that ~ 90% of spaces have asking rates. In a normal transaction, a tenant considers spaces in a rough and affordable range. They tour and then ask for proposals (by submitting an RFP). Landlords consider the credit of the tenant and consider costs like tenant improvements (TIs). Then they put together a sheet of terms and conditions that includes a quoted or deal rental rate. From there tenants, landlords and their advisors go back and forth to get to a complete set of agreements.
If you asked a landlord’s broker why they don’t quote asking rates, most will tell you it's because they don’t know how much TIs will cost for any given tenant. That's not a very honest response because nearly all landlords have market driven TI allowances factored into rental rates. Why is it that unknown TI costs don't prevent other landlords and brokers from quoting asking rates?
It’s interesting to see the cities where you most see “Asking Rent: Withheld”. In the Bay Area, San Francisco and Walnut Creek are two cities where many brokers hide these rates. It’s no coincidence that we also see a lot of young tech companies absolutely getting slaughtered by over-market rents in San Francisco. Newer companies without lots of real estate experience tend to be the biggest victims here. Withheld rents are a good way for the brokerages and the landlords to pump up the rates they get. As a markets get tighter, shrewd landlords and their brokers can test out over market rents during a tour.
So, we warn our clients about this process. We also work around it. If we are looking at two or three buildings in a specific price range, we might add a no-asking rate building or two to the RFP process. The RFP process causes those buildings to compete for the deal. We also find that most buildings with asking rent WITHHELD come in with higher rent proposals than equal and comparable buildings.
If you find a landlord looking to gouge you on rent before a lease is negotiated, consider yourself lucky to have identified the bad news early. Then, say goodbye.