CREJ

Page 12 — Office & Industrial Quarterly — March 2021 www.crej.com OFFICE LEASING E verybody loves spec suites. Landlords, tenants, asset managers, brokers – they’re all on board. And why not? Spec suites always have been a durable, timely real estate option for tenants, especially in distressed cycles. COVID-19 is aggressively put- ting that claim to the test. A speculative suite, or “spec suite,” is a rentable office space built out by the landlord without a committed tenant to lease it. That is, all the design and construction of the suite is done at the front end before a prospective ten- ant begins the lease negotiation pro- cess. In “traditional” leasing it takes 80 to 120 days to build out any given space, and that’s only after design approval, pricing and purchasing of finishes, and navigating through the construction documents with the architect. Spec suites can have almost limit- less variables but share a common theme: They’re built to be move-in ready or nearly move-in ready to present prospective tenants with a far shorter search-to-lease timeline than traditional leasing can offer. In a market as uncertain as this one, spec suites may be the answer for tenants that require a fixed address in a space visually adaptive to their general requirements. “The pandemic has affected every business differently,” said Greyson Konkel, construction project man- ager with Stream Realty Partners, a commercial real estate firm working with owners, investors and tenants. “The common factor for many ten- ants today is that they need to adapt, sometimes very quickly, to changing conditions. Specs suites are ready to go. They offer that flexibility in size and design that allows tenants to hit the ground run- ning.” They also offer a visual element that existing build- ing spaces cannot. Existing suites or even ones in “white-box” condi- tion offer few or no clues as to what the finished product might look like. Although software technology can produce stunningly realistic render- ings of any given space, it’s still not the real thing. There is no substitute for actually being in the space sur- rounded by those visual and tactile elements, even if design is on the sim- ple side. And that’s really the point. A clean, basic aesthetic allows land- lords to cast a wider net for potential suitors. Typically, those spaces should include a reception area, conference room, kitchen or break area, perhaps a few fixed offices and an open area for workstations. There are almost limit- less variations on that collection, of course but, again, simplicity is what sells. Spec suites can range in size from less than 1,000 square feet to several floors depending on a host of fac- tors. Generally, the larger they are, the more potential complications exist, especially with COVID-19 distancing and hygiene requirements in place. “The size of those suites is based largely on potential tenants in the area relative to how much vacancy exists in a particular building or development,” Konkel said. “And there is the state of each building, the submarket location and any specific market conditions. Clearly people are chomping at the bit to get back into their buildings, but confidence is just not there yet.” Some shaky market fundamentals reflect that sentiment. Metrowide, the office market absorbed negative 1.5 million square feet in the last quarter of 2020, a record low, according to CoStar Group. Vacancy took a hit as well rising from 15.8% to 17.4% in the fourth quarter, as all three building classes continue to struggle. Rates haven’t yet begun to drop significantly, but landlord conces- sions like free rent and parking and more generous tenant improvement allowances are on the rise for the first time in years. “Small spec suites are leasing quick- ly at this point in the COVID-19 fren- zy,” said Justin Rayburn, principal at Fountainhead Commercial. “We’re see- ing business owners ready and willing to kick-start their companies again, jumping on spec suites that are newly constructed and immediately available in the marketplace. The smaller spec suite option is giving those owners a chance to reduce their footprint and Spec suites may be best option amid pandemic Rick Roberts General manager, Aberdeen Construction Aberdeen Construction Spec suites offer tenants a fast track to occupancy. Designs are usually clean and simple with a variety of architectural elements. Please see Roberts, Page 18