Landlords are turning over every rock to find companies to lease space in a market that is over 20% vacant, and schools have become a more acceptable tenant. Although educational users were recently dealt a blow due to concerns over future funding, some non-traditional schools such as Rasmussen, Stayer, DeVry and Phoenix University have experienced rapid growth over the last several years.
As a result of the soft office market conditions, many landlords have now elected to lease space to these schools, even those schools that have students coming to the building on a daily basis. There was a time in the not-so-distant past when Class A landlords would not lease space to schools where students would be coming to the building because they didn’t want the students milling around with the business professionals. It wasn’t the image the Class A landlord wanted to portray because they believed it would hurt new leasing and cause current business tenants to potentially not renew their leases.
Today, we are seeing more and more Class A landlords sign these schools to long-term leases. Leasing activity has been down substantially in the last few years and landlords are feeling intense financial pressure to get space leased. With the growth of these schools, landlords have become more interested. The schools typically hold classes at night when their heavy parking requirements can be accommodated, and students would have less interaction with the business professional leasing space in the building.
This trend of schools in Class A buildings has been gradually growing, and with vacancy projected to remain high for several years, it wouldn’t be surprising to see landlords consider other non-traditional tenants in some areas.
Bill Rothstein is a senior vice president in NorthMarq’s Brokerage Services group. He has extensive experience in the sale and leasing of office properties and has represented many institutional and entrepreneurial owners of real estate, such as Teachers Insurance and Annuity Association of New York, Met Life, Sun Life of Canada and IRET.