The new speculators in town? Landlords. What are they taking risks on? Spec suites… and the risks are paying off. Spec suites, in simple terms, are essentially built-out office spaces without a specific tenant in mind. Spec suites are the new buzz word—the intriguing new concept—in the world of commercial real estate. In our previous newsletter, we highlighted the growth of co-working space. The article, titled Does WeWork?, gave you a first taste of the rise of collaborative working space in the Minneapolis Central Business District.
This speculative suite concept began in Europe and has slowly penetrated the United States, starting with the coasts. What we, as tenant representative brokers, have been urging, educating around, and suggesting to landlords, is to get ahead of this idea and start building spec suites; the need for this type of space is desired more than ever right now and that demand is only expected to increase in the coming years. Within the last year, over a dozen downtown Minneapolis buildings offer spec suites, ranging from 3,000-5000 square feet usually, and all the way up to spaces of 10,000 square feet. Following this trajectory, within the next 12-18 months, it will be a hindrance to the buildings that don’t have spec suite options. Landlords, both veterans and new to the market, should anticipate the construction of spec suites in their buildings, if they haven’t yet already been built.
The ease of moving into a spec suite is of utmost attraction for the tenants. “Ready. Set. Go” is the desired experience for tenants seeking spec suites. The space is already planned, the furniture already in place, walls already painted. On Friday they can sign the contract and by Monday they can be moving in to their new space, needing only to bring their personal belongings. Given the nature of spec suites, the common area, kitchenette, break out rooms, etc. are all located in a central location on each floor, for all speculative suite tenants to share. This negates the need to build that out in one’s own space, on one’s own dollar; tenants cost per employee headcount decreases significantly with these turn key features.
The United States has started to pick up on another trend from Asia and Europe: modular or demountable walls which have also become very attractive to tenants seeking spec spaces. Because of the ability to shrink offices, expand offices, add offices and create more break rooms—all while making them soundproof—demountable walls are becoming a staple in office build-outs. Many spec suites are starting to utilize this option, making their presence even more appealing, as a tenant could move a wall, make one of the few offices bigger, etc.
We have helped to place many clients in spec suites; from marketing firms, to software developers, to law firms, spec suites can be a fit for nearly any industry. For our clients, one of the most attractive qualities surrounding spec suites is the flexibility of terms. Beyond the reasons of easy access, high quality build-out, lower costs, one of the main reasons both we and our clients liked the spec suites as their final choice was the fact that they were ‘younger’ companies, which meant they had the ability to grow into more space, and they had the ability to right size into only needing 60-70% of the space their currently occupying. In many cases, so long as the tenant stays within the building, they can expand or reduce into new space without any financial event - beyond the change in rent rates. Essentially, making their contracts amenable and their lease terms transferable.
Not only are spec suites a win for tenants, they are also a financial win for landlords. A full build out of office space—especially in downtown Minneapolis—can get very expensive very quick. With spec suites, landlords are making deals with furniture companies, allowing them to make a space more attractive at a more attractive price. There is very light modification done to the spaces before they are move-in-ready, but nothing substantial. The landlord can keep the same construction and space build-out for multiple tenants—beyond the standard updates and renovations that are needed every handful of years. This relieves them of possible tenant improvement costs every 5-7 years and they can better avoid construction costs that go beyond their bottom line.
However, many great concepts are not free of all challenges: the main challenge with spec suites is brand identity. With a traditional office build-out, tenants can design their space so that it reflects the culture and energy of their brand. With spec suites, however, there is no communication regarding the space’s colors, layout, scheme, etc. Additionally, there are rarely many private offices or breakout rooms in spec suites; rather, they are designed with more of a collaborative and open/creative space layout. Given these conditions, there are certainly some tenants that spec suites are not the right fit for.
Our job as tenant representative brokers is to find the happy marriage between the tenant and the landlord; spec suites give us a whole new platform in the collaborative-work companies and the collaborative environments. With the influx of spec suite options in the Minneapolis central business district, it will soon cause a shift in the allocation between traditional office and collaborative workplace.
Expect speculators around this concept to become full-blown supporters in no time.
Senior Vice President
Colliers International | Minneapolis - St. Paul
Connect with Tom
Colliers International | Minneapolis - St. Paul