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Boost marketability with tenant improvements

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For property owners and managers, tenant improvement construction can be a sound investment for attracting desired tenants and securing new leases. Depending on the particular space and potential clients, the best timing for tenant improvement construction can vary from before the space is presented to after the lease has been signed. So how do you know what is right for your building? There are several things to consider to maximize the investment potential of building renovations and tenant improvements.

Timing is everything

"It used to be the norm for property managers and owners to secure a tenant before investing improvement dollars in a vacant space. Today however, leasing agents are finding their listings to be more desirable if vacant space is returned to marketable condition," said Keith Robertson, project manager at Ocean West Builders. "With a lot of second- or third-generation space on the market, available space with improvements that were very specific to a former user is becoming a hindrance from a marketability standpoint. As a result, many property managers and owners are investing funds to correct these conditions."

Robertson said his company has completed many tenant improvement projects in the past several months that resulted in quick signings following construction. For example, with small industrial and office suites, potential users want to see space that is move-in ready. Smaller users sometimes make quicker decisions about signing leases and moving into a new place of business. Spending improvement dollars to ready these smaller suites for a new tenant is usually money well spent, as the more ready the space is, the more likely a prospect is to sign a lease.

For several reasons however, the decision to renovate to improve marketability may not be the best investment for everyone. Maril Hamilton, principal of The Design Consortium, said that oftentimes the tenant will bring their own furniture to the space, which may not complement the existing look. The result is that improvements must be redone to meet the client's needs.

In addition, according to Robertson, a tenant may want a space to be remodeled further, sometimes back to the condition it was prior to the renovation.

A sound investment for the future

Oftentimes, making improvements that answer very specific needs of a tenant can help to secure a lease, however this may require additional renovations when leasing to future tenants. John van Blerck, president of JVB Construction, said with careful planning, property owners and managers can experience substantial savings in future renovations while satisfying the needs of current tenants.

There are several cost effective elements that can be incorporated into a tenant improvement plan. Van Blerck suggests using demountable, reusable doorframes as opposed to a hollow metal frame, which is more commonly used. The frames can easily be relocated and reused in future tenant improvement or building modifications. He also suggested building interior partitions to the underside of the suspended ceiling. Although using this technique may not provide the same level of acoustic separation between offices, this will substantially reduce the costs of future tenant improvements, as the reconstruction of ceiling grids will not be necessary.

"Making minor investments prior to placing a property on the market can provide a competitive edge and still leave room for more major and costlier renovations after the lease has been signed," van Blerck said. "Elements, such as paint, new carpets and minor electrical work can be a relatively small investment, however the visual impact can add considerably to the building's marketability."

A model alternative

Hamilton offers another suggestion for those who may have a budget but aren't ready to invest in improvements before a lease is signed. She said The Design Consortium has seen an increasing trend in the use of model suites in commercial buildings -- that is taking a smaller space and designing it using the building standards.

"Incorporating a model suite into the building allows prospective tenants to gauge the potential of a space and see what is available as far as carpets, wall covering, ceiling, flooring and lighting," Hamilton said. "The space also serves as the ideal meeting place for prospective tenants. With the help of a creative, experienced designer, model suites can be done at a relatively inexpensive cost."

Whether returning a building to "marketable condition" prior to placing it on the market, promising improvements as a condition of the lease or displaying a suite of design elements for potential tenants, investing money in your building's appearance is an invaluable way to increase your building's appeal in San Diego's competitive leasing market. An experienced tenant improvement professional can guide property managers into making the best investments, while maximizing a building's possibilities.

Kay is on staff at BOMA San Diego.

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