Could a Spec Suite be Right for You?
It seems like every day we look out our windows on 7th St. and see the city change all around us. This quarter we saw 613,029 square feet of new office construction hit the market and a Direct Vacancy Rate of 11.8%. As more of Austin is currently being developed we are still faced with a looming question, who is going to build all of this? In July, the construction industry saw a decline in employment of 8%, which equates to 1,500 jobs. This has a ripple effect that causes an increase in construction times. The current timeline for a tenant to remodel an office suite can take upwards of 12 months, or longer in many instances. Many companies find this timeline to be simply too long to consider a traditional remodel.
Many tenants are opting to look for speculative office suites (commonly known as Spec Suites) instead of proceeding with a build-out project. These office suites are built to meet market trends, prior to a tenant signing a lease. This saves time and allows a company to begin operations sooner. Additionally, this solution for tenants removes the risks around expenses associated with a construction project.
The typical build out for a shell space takes 3-4 months for the design and permitting, 1 month for construction bidding, and finally 3-4 for physical construction. This is all assuming there are no supply chain issues or other delays commonly incurred in construction projects. Most businesses would need to plan a year in advance to make this type of build-out possible. We are finding this long of planning is not feasible for most companies. These companies will opt to look for a space that is already pre-built and spec suites offer a convenient solution for companies looking for an office.
Currently, in Austin, there is nearly a half million square feet of spec suites. Landlords historically would use spec suites to draw attention to small hard-to-lease offices. However, today the average size of a spec suite is much larger than its predecessors and it is not unusual in the current market to see spec suites over 10,000 SF. Landlords may find that having a spec suite sets them apart from the competition and drives more companies to look at their offices. However, for some landlords, the cost of preparing a spec suite may be too much of a gamble and, they may feel that this expense will limit any further investment ability. Ultimately, creating a concern that they won’t design the space to meet the needs of a future tenant. However, in ECR’s experience, the design of office space is becoming less tenant-specific and with the help of a skilled interior architect, you can design a space to meet the needs of many of today’s tenants.
Austin Q2 2022 Development Pipeline
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