Business expanding? Contracting? Lease expiring within the next two years? In the market for new office space? If so, this information could be useful. Following is the typical process and related timing expectations for planning your new workplace environment. There are extraordinary circumstances in most cases that tend to affect the “typical” process; so this should not be viewed as gospel, only a conceptual outline.
For purposes of this example, let’s assume that the company is a 25,000 square foot general office user in an urban market with no extraordinary space or fit-out requirements. There are critical milestones pointed out below, which all need to fall into sequence in order to achieve target occupancy dates.
The process in which the design team surveys the tenant’s (often referred to from a contract perspective as the “owner”) business practices, uses of space, flexibility in growth and contraction, and desired workplace culture in order to determine the conceptual minimum space required.
Identify Adequate Office Space
The owner’s real estate professional (broker or consultant) will identify the available space in the marketplace that fits within with the program, location and economic parameters.
Create Short-List of Real Estate Options
The total inventory of feasible options is reduced to a manageable short list in an effort to create a competitive environment for securing one of the desired short list properties.
Develop Test-Fit Plans
The design team will create a test fit for the short-listed properties to ensure that the program as identified will fit the available space. Often times, it’s this process that uncovers certain inefficiencies of a building’s footprint that may eliminate it from contention. On the other hand, if a footprint is extremely efficient, the resulting program may indicate the opportunity to commit to less square footage, increasing the economic desire of that location.
Obtain Preliminary Construction Budgets and Schedules
Once the test fit plans (or, preliminary space plans) have buy-in from the owner, the contractor will provide preliminary estimates (often referred to as “budgets”) and the associated construction schedules for owner review and compare. This practice allows the owner to gain a greater understanding of its total financial exposure for various occupancy alternatives, a key component to the lease negotiations for the owner and the broker.
Conduct Lease Negotiations
The information provided by the design and construction teams will arm the brokers with the data necessary for an apples-to-apples comparison of the alternatives. There are generally two elements involved in the negotiation, the financial terms and the legal terms; the process of negotiating much of the key points (mostly financial or business terms) in the letter of intent (LOI) is one that can expedite the process and reduce legal fees.
Pursue Final Design, Permitting and Construction
As the short list is reduced to one, the team begins to develop the construction documents (CD’s); to initiate the permit process; and, the contractor begins bidding the final documents to the sub-trades to develop a competitive final estimate and detailed scope of work. This component of the process may be shortened significantly via the collaboration of the design and construction team during the site selection and lease negotiations process.
Substantial Completion of Construction
The point when construction is sufficiently complete in accordance with the construction documents where the tenant (owner) can occupy the building or premises. Typically, the architect or engineer will certify that the space is deemed “substantially complete”, which date becomes the date of substantial completion. The significance of this date is that it’s often a trigger for rent or term commencement per the lease – another point of negotiation that should be considered by the broker during the pre-construction phase.
Installation of Furniture, Fixtures & Equipment (FF&E)
The owner’s furniture, fixtures and equipment are moved in and installed. A prudent business practice is for the design and construction team to be actively involved with the various vendors throughout the design and construction stages in order to avoid potential code or installation issues, which could become costly tenant delays.
Commissioning and Certification of the Premises as Pertinent
With typical office space, the commissioning and start-up procedures are minimal when compared with that of mission critical facilities. However, although the magnitude of the owner’s technical requirements might not be that of a 500MW data center, it doesn’t do the owner any good if their facility isn’t functioning as designed. There may also be ‘Well-Building” certification process that might require off-gassing of new materials prior to occupancy, for example. The related professionals should be consulted during the pre-construction phase in order to determine the time allocated for this final phase before occupancy.
Substantial completion has been achieved; all inspections have been successfully completed and signed off, the authorized agencies have issued a certificate of occupancy where necessary, and any commissioning processes have been completed, the owner may occupy.
In order to maximize leverage in lease negotiations, and minimize the unnecessary costs of expediting design, permitting and construction, (Provide LinkedIn connection for Greg, website link for TenantSee and for Cushman & Wakefield) Greg Fogg, Founding Partner, TenantSee at Cushman & Wakefield, suggests beginning the initial process about one year prior to the target occupancy date of the new premises.
“The caveat“, Fogg states, “is if a tenant has a renewal option that is relevant, requiring exercising one year prior to expiration… in that instance, we would likely trigger the early stage of our process (vetting the market) sooner so that the tenant is ready to make an educated decision by date of exercise.“
Before the brokers are able to accurately represent the user’s requirement in the marketplace, and as a prudent business exercise, the tenant should engage the services of a design firm to identify the actual size of the space needed. A common mistake is for an executive committee to give early directive about space needs without consulting a design or construction consultant. As an example, a 25,000 square foot user takes their footprint, assumes growth and proceeds with the direction to their real estate consultant to find 30,000 square foot alternatives in the marketplace. This can create costly problems if the user is in late stages of negotiations when it finds through the diligence of its design team that modern design efficiencies allow for greater use of space and ultimately a reduction in required office space, such that the necessary space may remain at 25,000 square feet. Thus, engaging the design team for early programming can save time, headaches and money. The entire team benefits from efficiencies gained through early knowledge of the actual requirement and program.
A common method used for identifying critical milestone dates by the design, construction and real estate consultants, is to determine the desired occupancy date for “FDOB”, or first day of business. What good is a space that’s been deemed “substantially complete” if your business isn’t able to function in such a space? Working backward from the day that all systems are go with butts in seats, the design and construction team prepare the critical path schedule that will depict what milestones will be accomplished by whom and when. Referring back to our sample user, the minimum time required to effectively perform the necessary steps is 45 weeks, on average, per the table below. However, in construction more than anything, it’s best to allow for contingencies where possible, and the more time one has for lease negotiation, the higher the probability for a better deal.
The typical schedule for a 25K SF office tenant to identify, design, build and occupy new space is approximately 45 weeks from start to finish (assuming no delays).
Assumes that there are no changes or delays in approval process. Some of these steps can easily triple in time required if the process isn’t managed effectively.
Tenant Relocation Process – Conceptual Timeline
|STEP||AVG. TIME ALLOTMENT||CUMULATIVE TIME|
|Programming||3 Weeks||3 Weeks|
|Identify Adequate Office Space||5 Weeks||8 Weeks|
|Create Short-List of Options||1 Week||8 Weeks|
|Develop Test-Fit Plans||2 Weeks||10 Weeks|
|Preliminary Budgets and Schedules||2 Weeks||12 Weeks|
|Initiate Proposal and Conduct Lease Negotiations||8 Weeks||20 Weeks|
|Design, Permitting and Bidding (simultaneous)||8 Weeks||28 Weeks|
|Construction||14 Weeks||42 Weeks|
|Installation/Commissioning FF&E||2 Weeks||44 Weeks|
|Systems Commissioning and Certification||1 Week||45 Weeks|
|TOTAL TIMELINE:||45 WEEKS|
Contributing Author: Greg Fogg
Greg is a 30-year veteran of the bay area commercial real estate market. He brings a uniquely diverse background to his practice, having spent more than a decade inside of institutional landlord organizations where he was responsible for leasing large portfolios of office space. This experience enabled him to learn firsthand how landlords leverage the gap in knowledge between tenant and landlord to enhance leasing outcomes. Greg’s tenant advisory practice has always been about mitigating this effect. But traditional brokerage, no matter how competent, can only go so far. It fundamentally fails to incorporate critical experts in a timely manner to address all facets of the value spectrum (design, construction, legal, etc.). Learn more about Greg on his website: https://lowfogg.com/about#greg
Real Estate / Workplace Trends
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