Soaring rentals for office space are forcing medium-sized businesses to seek out “bargains” in Class B and C buildings. These same businesses find added challenges in negotiating with landlords or securing contractors to fit out their spaces.
The latest generation of systems furniture can bring affordable style to these spaces without sacrificing quality or value. Benefits include taking control of your workspace, providing an attractive and comfortable environment and increased flexibility. By the latter half of 2007, with few exceptions rents were on the rise in the commercial real estate market. In Manhattan, for example, squeezed by rising rents and vanishing space, office leasing activity dropped off 12.3 percent for the first three quarters of the year compared to 2006, but rents and investment sales continued to soar. Chicago Business reported on April 9 that “rents for office space downtown and in the suburbs inched upward for the second straight quarter and may be posed for a bigger jump in coming months.”
Bill Goade, CEO of corporate real estate advisors CresaPartners LLC notes that while the speed at which the pendulum is swinging back in favor of landlords differs from region to region there is clear evidence that the overall commercial real estate market is rebounding. “Upward rent pressure is also coming from rapidly rising construction costs which require higher tenant improvement allowances and makes new speculative building prohibitively expensive.” He noted that options for tenants to be proactive in negotiating early lease renewals and flexible terms and concessions remain “but there are ever fewer options.”
Yet offices and people continue to be on the move, according to a recent CoreNet Global survey. Of corporate end-users surveyed, nearly two-thirds reported at least 10 relocation projects in development, while one-fifth have more than 100 projects planned for the next 12 months. Access to customers and markets is the key location factor among corporate end-users, followed by cost savings and access to innovation. Other studies show that the average churn rate for most companies is 40% per year but can go as high as 200%.
While all this might be interpreted as good news for landlords, it poses real challenges for owners of small to medium-sized businesses without the “clout” to negotiate favorable terms for their expansion plans. They must strike a balance between “affordable space” while providing workplace amenities that attract and hold qualified staff. Lofts, warehouses, underperforming retail malls and similar class C spaces in older, unrenovated buildings help with the former.
Achieving the latter is fraught with further challenges. That’s because, as owners of smaller businesses are quick to learn, locating suitable space is only part of the problem. Furnishing it without breaking the budget can be equally vexing. It its 2006 Trends Recap, Today’s Facility Manager noted that “manufacturers must be in tune with the needs of facility managers, many of whom have smaller spaces and tighter budgets to work with when purchasing office furniture. Practicality is a necessity, and the trends of 2006 in furniture design reflect this requirement.” TFM’s recap stated that cubicles still reign supreme in offices, but they are changing. Furniture should accommodate changes in technology. Versatility should be a key purchasing decision because work styles demand that furniture adapt quickly and easily. Among factors driving furniture trends are space, budget constraints, people, and technology. “Facility managers should keep an eye out for the factors that will determine purchases for their specific organizations,” the article recommended. In an article titled “Why Silicon Valley is Rethinking the Cubicle Office,” Don Clark reports that the privacy needs of companies are varied and change over time across organizations. The article suggests the need for flexible interiors that can be comprised of stacking/de-stacking panels that can extend all the way to the ceiling when complete privacy is required.
While few will argue with these conclusions, the simple truth is that in today’s market, real estate brokers and landlords are not interested in discussing furnishings or build-outs with tenants occupying small spaces when they can concentrate on those leasing 50 thousand to 100 thousand square feet and more. That effectively excludes the nearly 25% of business owners leasing less than 10,000 square feet of office space. Even if the small business succeeded in negotiating a deal, costs upwards of $80 per square foot would apply either up front or tacked onto the lease.
In some regions $80 per square foot is on the low side as build-out expenses continue to increase – as much as 10% - 20% in the last 18 months, according to an article in Crain’s New York Business. The article cites raw materials and tight labor markets as reasons, along with oil price increases impacting the cost of plastics in construction materials. This contrasts to renovation price tags that can range from $25 to $75 per square foot, depending on how extensive they are.
Opting for renovating existing space or fitting out a new location is one part of a solution. The other is finding an independent contractor willing to take on the job. Like brokers and landlords, most are not interested in small projects. Even if one were located the work seldom yields satisfaction because business owners immediately lose control in terms of quality, cost overruns and missed completion dates.
The right solution to the fitting-out challenge is a new type of smart and sophisticated systems furniture. Properly planned and sourced, these integrated interior solutions can be installed at less than half the price of a contractor build-out while at the same time providing factory-assured quality, increased flexibility and a guarantee of on-time completion
This MAiSPACE White Paper will help business owners and operators make smart choices in systems furniture and office workstations for their offices. Larry is a copywriter of Office Workstations and Cubicles for Maispace Systems Furniture.
