An announced change in the computation of the consumer price index could result in a slew of renegotiations of office leases, some commercial leasing experts predict.
Faced with rapidly rising inflation, and taking advantage of a tight office leasing market, office building owners over the past few years have been able to insist on clauses in leases for automatic rent increases based on the CPI. Most of these contain provisions that if the CPI measure is revised, the landlord and tenant will renegotiate the escalation clause, according to Washington commercial broker Justin Hinders.
Bureau of Labor Standards Commissioner Janet Norwood announced this week that the way the government calculates the CPI would be changed to include what she said would be a more realistic measure of the housing component, one based on what all types of housing would rent for, rather than on what homes are selling for during the period. One version of the measure, the CPI-U, is to be converted to the new system in 1983, and another, the CPI-W, in 1985.
"It's going to cause a lot of consternation," one commercial leasing expert said. "When I saw that the announcement , I said to myself, 'Boy, are the lawyers going to be happy now.' "
Small merchants and retailers who don't have the resources to challenge their landlord are likely to just lose out in the arbitration, but big companies with large amounts of space probably will fight hard for the more favorable CPI measure, this expert said.
An experimental CPI quite close to the system to be adopted has almost always resulted in a lower figure than the CPI measure currently used. The BLS pointed out, however, that if interest rates or home prices fall, the reverse would be true.
For many, the difference will be miniscule, others say. James O'Brien, vice president of Coldwell Banker commercial real estate, says that most leases here provide for escalations of between 25 percent and 30 percent of the CPI, and a one percentage point change in that measure would not mean much one way or the other on those leases.
"The market is soft right now. Landlords are more concerned about making a deal" than renegotiating a CPI measure, O'Brien said.
"With the glut in the office market coming in 1982 and 1983, I don't think landlords are going to be too pushy about it," agreed Terry Amling, a leasing agent for Julien Studley Inc.
"To some people it could be a big deal, but there's not much they can do about it," he added.
But one thing a landlord or tenant can do is litigate or arbitrate, if it is worth his while. Some leases do have escalation clauses of 100 percent of CPI, and other tenants just have so much space that even a small percentage change can mean thousands of dollars.