Written by: Collin Fitzgerald, Trey Hafer and Chris Potts
The National Observer recently published an article on how office-upfit costs have continued to rise but have leveled off from inflation spikes. Collin Fitzgerald, Research Manager, interviewed a few of our experts at Colliers | Columbus to get their take.
Trey Hafer, Senior Project Manager - Colliers | Columbus
Trey is a central part of the tenant improvement and office buildout process for Colliers’ commercial tenants. His experience with construction and project management allows him to work hand-in-hand with the Real Estate Management Services team to produce beautiful spaces for office tenants. His strong communication skills, effective project organization, and clear understanding of the construction and leasing processes are fundamental to every project.
Trey's Take on Cost Management
How are you managing rising fit-out costs while ensuring projects stay within budget? Managing rising fit-out costs is a difficulty that we are continuously adjusting to. Starting with a detailed budget and implementing value engineering strategies can help us control some of these risks. Lastly, utilizing fixed-price contracts can help lock in costs and ensure the project stays within budget.
What strategies have been most effective in controlling costs without compromising on quality? We can work towards controlling costs by value engineering, competitive bidding, and scope management.
Trey's Take on Design Trends
How have trends toward flexible workspaces and increased amenities affected the design and construction of office spaces? Design trends towards flexible spaces and increased amenities have led to more open floor plans. We are angling offices towards multiple functions centered around collaboration. In most offices, the cubicles are gone and replaced by open work areas promoting osmosis in the workplace.
What are the most in-demand features or technologies clients request in their office buildouts? These trends have led to an increase in demand for adaptable items like moveable partitions. There has also been a trend towards a tenant-specific fun or wellness activity space. This can be anything from a golf simulator to a drink station or coffee bar. Additionally, glass walls are, and have always been, in demand. Glass creates an openness for natural light and visibility rather than a closed-off office space.
Trey's Take on Client Expectations
How have client expectations for project timelines and budgets evolved with the fluctuating costs? Clients have been forced to view upfront planning and deadlines with greater importance than ever before. Quick and informed decisions can reduce fluctuating costs. A detailed review of initial project plans can help clients reduce unforeseen costs from adding scope to the project after execution has begun.
Can you share examples of how you have adjusted project plans to meet these new expectations? We have adjusted project plans by emphasizing deadlines to help lock in volatile pricing at a known point. We often find ourselves pricing many alternate scenarios to present clients with multiple price options in case there is an acceptable alternative.
Trey's Take on Challenges and Solutions
What are your biggest challenges with the current cost environment, and how are you addressing them? The biggest challenge we face is variability in costs across similar disciplines. We rely on relationships developed with strong contractors and suppliers to ensure that we are getting fair and accurate pricing.
How do you balance the need for high-quality finishes and modern amenities with budget constraints? We balance this by aiding in establishing areas that are the most impactful and will require high-quality by looking into cost effective materials in other office areas. A large amount of how we control this is by educating stakeholders on the price challenges for different materials.
Trey's Take on the Impact of Landlord Concessions
How do landlord concessions influence the scope and quality of office fit-outs you manage? Stricter landlords can influence scope and quality by creating a need for sacrifice or prioritization. Conversely, beneficial landlord concessions can allow for more elaborate fit-outs.
Are there specific types of concessions that have been particularly beneficial or challenging to incorporate into project plans? Landlords providing a healthy tenant allowance or budget allows tenants more opportunities to improve their space. At times, scope additions are necessary in construction. Landlords who are willing to understand and view additions as a benefit to their asset often aid greatly in making the process flow more smoothly.
Trey's Take on Technology Integration
How has the increased demand for technology integration in office spaces affected your project management processes? Most tenant office projects require specific technologies, whether this be server rooms or advanced camera projection experience. It's crucial, now more than ever, to proactively discuss and plan for these technologies in advance. As technology advances rapidly, there is often a need to consider the longevity of designs in relation to technology.
What technological advancements have had the most significant impact on office fit-out projects? Collaboration tools are often the most helpful. We can bring together stakeholders and potentially review real-life situations on video or in pictures. Changes can be made to documents very quickly and distributed right away.
Chris Potts, Brokerage Senior Vice President - Colliers | Columbus
Chris brings over 25 years of experience to the real estate industry focusing on both the leasing and sale of office properties. He hosts a large client base through out the central business district and the surrounding submarkets of Greater Columbus.
His vast knowledge of buildings, owners, and market information combined with an innovative nature in the business lead to successful solutions for his clients looking to lease, purchase, sell, or develop office buildings.
Chris' Take on the Impact on Leasing Decisions
How have rising office fit-out costs influenced leasing decisions among your clients? Both landlords and tenants have to make concessions on the length of the lease and value engineering construction plans to help reduce costs.
Given the current cost trends, are tenants more inclined to renew existing leases or seek new spaces? If a tenant can renew with little work being needed to their existing space, they will most likely renew, provided the property and location continue to complement their business. If the existing property is dated or the tenant has adopted a permanent work-from-home strategy that reduces their size need, then they will relocate.
Chris' Take on Tenant Preferences
Given the current trend of rising fit-out costs, have you noticed any changes in your clients' preferences for certain amenities or office layouts? More open environments with consideration for collaboration areas, but even part-time work-from-home employees still want a dedicated touchdown spot for them in the office.
How important are technology features in your clients' leasing decisions? Technology is vital for work-from-home staff to have the connectivity needed to communicate and access some shared services as if they were in the office.
Chris' Take on Negotiation Dynamics
How have landlord concession strategies evolved in response to increasing fit-out costs and the tenant-favorable market? We are seeing longer lease terms so landlords can provide more tenant improvement dollars. If a longer lease is not possible, the tenant is either reducing the cost of the plans or contributing funds to the build-up.
Can you provide examples of how landlords negotiate tenant improvement allowances to attract or retain tenants? A landlord can only provide so much based on the rent being received over the lease term. We are seeing more landlords negotiate dollars per square foot, per year of lease term as a tenant finish allowance. Each landlord is different, but the higher the allowance per square foot per year, the more likely a landlord is going to win a new tenant.
Chris' Take on the Future Outlook
What trends do you anticipate in office fit-out costs and tenant expectations over the next few years? The continued increases in contractor labor and material cost will likely significantly influence the market. As the amount of construction in Columbus, Ohio, continues to grow, increasing construction costs is expected to persist, presenting challenges and opportunities.
How might these trends impact the overall commercial real estate market? Office rents will have to continue increasing to keep pace with rising construction costs for all properties. The older properties will need to push to spend money to remodel suites and common areas to stay fresh but maintain competitive rent. The landlords that keep their properties up to date will continue to win the tenants in the market.
Sources: Columbus Business First, The National Observer, The Business Journals