Spec suites – spaces that are built out by a building owner for the purpose of marketing a vacant suite or floor – are growing in popularity and in size, with new projects devoting entire floors and buildings to spec space.
“The concept of the spec suite is powerful,” said Bill Baldwin, a tenant rep broker with Cresa. “Some tenants might need space right away and this presents an immediate solution, while for others, the bigger issue is one of visualization. It is very hard for the layperson to walk through a space that was designed for someone else five, 10 or 15 years ago and visualize what could be for their current needs.”
Spec space is more popular than ever, according to a broker panel at the CREJ Property Management Conference that included Jamie Gard with Newmark Grubb Knight Frank, Doug Wulf with Cushman and Wakefield, and Alec Wynne with Avison Young. For A- and B buildings, ready-to-go spec space does not fail, they said.
By preparing the space as ready to go, you instantly go to the top of the list for prospective tenants who fall behind on their planning, Baldwin said.
Through a successful built-out spec suite, a property manager can take a previously unleasable space and reimagine it in a way that can capitalize on the positives, said Michelle Liebling, Gensler’s senior associate and design director.
There are risks associated with speculative space, however, because the building owner is assuming the space will meet a prospective tenant’s needs without too much extra cost devoted to additional tenant improvements, said Chris Nichols, business director of Tenant Planning Services.
“Building a spec space may not always be a smart investment for property managers,” he said. “Depending on the quality of the building and types of tenants interested in those buildings, as well as the current build-out of any vacancies, it may not make financial sense to spend improvement dollars upfront before consummating a lease with a tenant.”
When debating the financials, many might consider “hypothetical space,” said Nichols. Hypothetical spaces are renderings that are intended to give prospective tenants a vision of what the space could look like. There is less risk on the building owner with this project because the cost is much lower.
However, it’s debated if renderings pack the same punch as build-outs.
“[Renderings] are huge in terms of helping people visualize,” said Baldwin. Cresa, which represents the occupiers of space, often sees that their clients need the landlord to sell the space by explaining, in a visual context, what is possible. “These days, it is relatively inexpensive for landlords to do 3-D renderings and visual fly-through of a space,” he said.
In many of the projects Box Studios has worked on, the space is leased based on the floor plan and 3-D renderings, without the need to build out the space, said Jim Graczyk, a principal at Box Studios.
However, the broker panel disagreed, and said that renderings are not nearly as powerful as actual built space. When prospective tenants just see renderings of possibilities, it makes the space “average,” and doesn’t compare as well to other spaces they see that are built out.
The decision should come down to ability and opportunity for a leasing broker to lease the space, Nichols said. He suggests that if a vacant space is shown for a period of time with no real interest, it may be more cost-effective to renovate the vacancy in an effort to lease the space sooner. In these instance, the decision to build may be more of a leasing decision than a property management decisions.
Tips to Succeed
Once the decision to build is made, the project becomes a property manager’s task. At this point, it is wise to pair up with a design team, which can point out problem areas as well as best features.
“Emphasizing the absolute best characteristics of the space are key,” said Liebling. “Whether it be column-free bay depths, magnificent views or stellar amenities, a well-designed spec suite should highlight the greatest attributes.”
The best spec spaces are simple and relevant to currently accepted aesthetics, said Nichols. Spec spaces that are open and take advantage of natural light show better and can maximize the features that the space has to offer.
“If the space is new, well-lit and intelligently designed, landlords will typically get a pretty quick return on their investment,” said Baldwin.
Traditional planning models with perimeter offices and inboard enclosed space with limited natural light may deter the potential tenant base, said Liebling.
In general, most spec spaces need a reception area, a meeting/conference room, a break room that includes a sink and a couple private offices. The break room can feature modern updates to make it feel more like a lounge or cafe than a pantry or kitchenette.
“If landlords present the space as a fresh and pleasant workplace, this will sell,” Baldwin said. “Usually this means demolishing the majority of the existing condition, upgrading the ceiling and lighting systems, and replacing the doors and hardware to something that is current. If there is a kitchen, on a speculative basis if a landlord were to replace the cabinetry and flooring, this goes a long way.”
The spaces should limit personalization and use quality products. If the materials are cheap, it will reflect on the overall space. Colors that are too radical should be avoided as well as bold patterns that might not speak to a company’s cultures. It’s often best to consider two or three coordinating color scheme for the building.
“You want to appeal to as broad an audience as possible for the size of the suite,” said Baldwin. “They have to be able to visualize their company in there, and using too much color or stylized design will limit the target audience. This is easily added later.”
Another thing to avoid is overdesigning the space. It is easier for prospective tenants to visualize what they can add to a space rather than visualize what they have to remove to make a space work, said Nichols. “Additionally, it can be more cost-effective to add additional rooms after construction (if necessary) as opposed to demolishing/removing offices and repairing finish treatments due to over design.”
Read more about what’s trending in spec spaces in the Q2 issue of Property Management Quarterly in CREJ’s April 6 issue.