CREJ - Property Management Quarterly - July 2017
What in the world is going on with office space? What does “traditional office” even mean anymore? In the last decade, we’ve experienced significant changes to the construction style of office space, and the emergence of alternative workspaces look like the changes have just begun. As a tenant improvement general contractor, we’ve had front row seats to watch this transformation. We saw the traditional office environment trend toward open concept. We then watched office buildings experiment with open ceilings, raw floors and exposed walls. Now the collaborative work environment seems to be incorporating these features and adding even more twists. The exposed concept, often referred to as industrial, began in the 1960s with the repurposing of old factories for residential lofts and apartments. Rather than focus on the concealment of the bones of a building, this new trend focused on the inherent functionality over form of factory buildings, presenting a new aesthetic that transcended residential and became quite common in commercial design. Retail was first to join the trend. I remember when restaurants started moving toward this design and thinking cynically to myself, “Well, that’s one way to cut remodel costs.” However, after years of estimating and constructing industrial designed spaces, it is very apparent this style often costs significantly more. The inevitable question is: How much more? This is difficult to quantify as each project has many different factors at play – ever heard a contractor say that? – but since we all want numbers, I’ll reluctantly oblige. Let’s first set a benchmark of $30 to $40 per square foot to remodel a traditional space staying within the same style. To convert this same space to an exposed concept could increase construction costs by $10 to $30 per sf. Many wonder why getting rid of walls and ceilings would cost more. Construction of raw space isn’t as simple as gutting the walls and ceilings. What ends up being exposed needs to be clean, safe and visually pleasing. Since the ceiling is completely exposed, abandoned pipes and wires must be removed back to their source. Duct work often will be upgraded to spiral ducting. Lighting fixtures can no longer lay into ceiling grid, so new fixtures are needed throughout. Sprinkler heads need to be turned up to cover the ceiling. Often, the newly exposed ceiling elements are fully painted. Exposing the concrete floors isn’t easy either. Carpet glue, tile mortar and mastic must be ground down and rough surfaces smoothed over. The surface now needs to be stained, polished or sealed. If exposing exterior walls is desired, the electrical needs to be ran through conduit. The rooms that do remain or will be built most likely need privacy. Soundproofing for conference rooms, huddle rooms and IT will need walls to deck or insulation and sound boots. After this process is complete and the raw space is, well, finished, there are still more elements that need to be built into this new environment to be considered collaborative. Kitchens and break rooms are no longer hidden but instead are open with islands and bars for employees to gather. Game rooms, lounges and huddle rooms are all deliberately designed within it. Collaborative workspace isn’t just a cavernous, empty room; it’s purposeful in its design elements to encourage natural interaction. The exclusion of physical barriers like walls and cubicles plays a big part in collaborative design. Alternative workspaces will continue to evolve, as we have seen firsthand from our national work with Spaces, a leading collaborative workspace provider. “The professionals who rent Spaces workspace prefer our boundless common areas without barriers to organic collaboration with others who are sharing in the same struggles and successes of entrepreneurship,” said Sheldon Shadrach, Spaces area manager. What this means for traditional buildings attracting collaborative workspace tenants is nothing new: The usual cost-benefit analysis of tenant type and prediction of the life of a trend remains. However, negotiating who will bear the increased costs of the transformation gets a bit trickier. Sophisticated tenants and brokers will recognize much of the costs are related to permanently repositioning a space and not related to usual finishes. Owners and property managers will have decisions to make whether a portion of their assets should be repositioned to accommodate for this demand and whether premium rates are justified. The industrial look and collaborative work environment is much more than just empty space. It is deliberately designed and becoming more desirable for a wider range of tenant types. While the construction itself may cost more than traditional finishes, what is the opportunity cost of ignoring the trend?