Once, commercial office tenants leased empty office space and had it customized. Then, landlords offered tenants offices that were generic in design and inexpensively pre-built: a series of private offices, an area for cubicles and a conference room. Now, a new trend has taken hold. Not only are office spaces offered for lease completely pre-built; these days they match the quality and attractive, contemporary design of custom corporate interiors. Both commercial real estate insiders and architects agree this new trend is here to stay.
How can landlords pre-build offices that would suit yet-unknown tenants? The answer is an experienced architectural and property management team that thinks like a landlord, closely follows local and national leasing, design and workspace organization trends, and has an eye toward thoughtful layouts that appeal to many types of businesses.
Daniel Montroy, AIA, is one such architect and his firm, Montroy Andersen DeMarco Architects (MADGI), comes complete with its own Landlord Services Studio, working alongside the largest New York City commercial owners, property managers and leasing teams since 1990.
Mr. Montroy has designed more than five million square feet of pre-built and build-to-suit offices in Manhattan for the likes of CBRE Group, Colliers, George Comfort & Sons, Atlas Capital and Equity Office. MADGI was also the design force behind headquarters offices of a multitude of global corporate bluebloods, such as Japanese advertising and digital marketing giant Dentsu, Italian coffee brand Lavazza, Givaudan Fragrance and National Futures Association, among others.
So what is the key to designing the spaces tenants want? Mr. Montroy says the skill requires “an understanding of market positioning, technology, budgets, and aesthetic and workplace organization preferences of varying businesses.”
“An architect’s role is to incorporate these factors into economical, well-designed programs that maximize property owners’ revenues, while impressing prospective tenants,” said Mr. Montroy. “The greatest challenge is that a pre-built must appeal to everyone, which is very hard to do.”
Mr. Montroy considers pre-built offices to be among the toughest design assignments.
“These projects call for much more than design abilities. The designer has to think like a leasing agent and asset manager, and suggest the most beneficial solutions to the landlord – the best use of the budget, the most promising tenant segment to target, the upgrades that will increase rent rolls.”
Most recently, this often comes down to what Mr. Montroy calls the “tech loft” – open loft-like spaces with minimal private offices and plenty of social space.
“It used to be that the majority of pre-builts were just generic ‘plain vanilla’ boxes,” he explained. “Now the majority, maybe up to 75% in certain areas and properties, are tech lofts.”
And these lofts are leasing quickly. In part, this is because the boxy and generic “vanilla” office no longer appeals to the majority of tenants, particularly those in the tech and media sectors, which are coming to New York in great numbers. Mr. Montroy refers to them as “TAMI” industries, a term that encompasses technology, advertising, media and information firms.
TAMI companies and many other types of businesses seem to want high-density spaces with glass divider walls in conference rooms and the few remaining private offices, as well as attractive social spaces, visible MEP systems, and eye-catching, quality finishes. They also like the ability to move in quickly to accommodate their rapidly growing staff and appreciate the flexibility of the space to morph along with their increasing ranks. He also notes that in many instances, the more walls, doors and offices one builds, the less attractive the space can be to tenants, as the greater the margin is for error.
“It’s a real credit to landlords that they’re investing in high quality pre-built spaces,” said Mr. Montroy. “We’re bringing the same design expertise and quality to landlords as we do when working directly with tenants.”
By building the interiors the companies want, landlords are attracting tenants more quickly: a win-win.
Landlords seem to be competing to offer the best pre-built spaces in pursuit of quality tenants. And in Mr. Montroy’s experience, landlords are spending as much as tenants. Even though today’s pre-builts are built with less interior features, they are more expensive than your average plain vanilla office installation. Removing the ceiling and exposing ductwork and mechanical systems still has to look good, for example. They can no longer simply be hidden behind a dropped ceiling; today’s pre-builts feature ceilings that are conscientiously designed and attractive. Architects work alongside engineers to ensure aesthetically pleasing mechanical layouts that complement lighting fixtures and other interior elements.
“The best pre-builts lease themselves very quickly,” said Mr. Montroy. “Tenants come in, look around, and say, ‘I want this.’”
A 13,500 square foot office at CBRE-managed 218 West 18th Street in Chelsea, for example, is a tech loft that was leased “before the paint was dry.” The space featured two private offices, a social space, a pantry, and an open-plan office section. The tenant, Internet company YieldMo, had its own architect advising them and making some minor modifications, but it was a successful enough space to lease before completion.
A 12,000 square foot tech loft space at the 24-story, 300,000 square foot 180 Madison Avenue, managed by CBRE, is another example. Mr. Montroy explains that tenants have been moving right in, doing surprisingly little work.
“They don’t want to do anything beyond installing furniture, telephones and computers. They want their new space to be plug ’n‘ play.”
Whether it is a full floor or a multi-tenant layout, he notes, “They all want an open collaborative workspace with a loft aesthetic.”
CBRE’s Laura Bruno, real estate property manager of 180 Madison Avenue, concurs.
“The trend of the quality pre-built is here to stay,” said Ms. Bruno.
It is something tenants are learning to expect from building owners. In her experience, the pre-built tech loft and the vanilla office has an even spread of about 50-50 depending on the building location and the market position. Bullpen seating – concentrated open space with lots of desks – and a high-end social space “makes the space much more attractive to tenants.”
While at 34th Street, 180 Madison is a bit outside of the so-called Tech Corridor popular among technology firms. Mr. Montroy nevertheless felt that a loft-type space there would attract high-tech tenants. Indeed, the first 12,000 square foot floor MADGI built there was leased quickly by Rubicon Project, and CBRE commissioned MADGI to design two more pre-built floors and the building’s lobby. Another floor was leased quickly, this time by three tech companies, specifically Bright Cove, Evolution Markets, and Global Investment Renewable. Each floor takes between six and nine months to complete.
“MADGI was very knowledgeable about the market and came up with design solutions that were instrumental in attracting the tenants we desired,” said Ms. Bruno.
In another project, MADGI developed a repositioning program for Colliers International’s 193,000 square foot 655 Madison Avenue. The landlord saw an opportunity to increase revenues by upgrading the property. MADGI devised a plan that included pre-built offices, infrastructure improvements, new terraces and interior layouts that took advantage of large windows with views of Central Park. The firm designed attractive, flexible pre-built offices to suit new full-floor tenants. As a result, 655 Madison has quickly increased occupancy.
For property managers and leasing and asset management teams looking to market newly available spaces, Mr. Montroy recommends first analyzing the local market.
“Review opportunities for attracting tenants in the fast-growing technology industries,” he said.
Then, he recommends establishing what an achievable rent level will be, and then in collaboration with an architect, establishing the desired cost per square foot of the pre-built office, keeping in mind the expected rent. Finally, he stresses the importance of developing a design that fits within the construction budget, while attracting the targeted tenants.
“If your target is in the TAMI sector, a tech loft and higher-end finishes are the way to go,” said Mr. Montroy. “The pre-built tech loft is going strong and will continue to attract tenants for the foreseeable future. Be prepared to spend money on higher-end attractive finishes. The money and care spent seem to be worth their weight in leases these days.
Peter Wilk of Wilk Marketing Communications contributed this case study as part of his work for client Montroy Andersen DeMarco Architects (MADGI).
