Creative Office Buildings as an Investment?

By Randolph T. Mason, CCIM, SIOR, Partner, Commercial Realty Specialists: Looking outside of the traditional box may be another way for investors to earn higher returns.

As we continue to see the investment market to be fiercely competitive, looking outside of the traditional box may be another way for investors to earn higher returns on one’s investment capital. In the past, creative office space traditionally seemed to be warehouse buildings that were substantially built out and had unfinished ceilings and flooring. What has been evolving has been traditional office buildings being retrofitted and converted into “cool and hip” space by removing the drop ceiling, thereby exposing the roof, insulation, sprinkler systems, air-conditioning, and whatever else was above the drop ceiling. The floors tend to be polished concrete, or some other type of flooring that is unique and different, typically not standard carpeting. The lighting tends to be upgraded and seems to be floating in mid-air.Randolph Mason

This type of build-out generally has fewer private offices, a game area for foosball & ping pong, a bistro bar, instead of a traditional closed room kitchen, conference room and smaller break out rooms along with a substantial portion being open space, which allows for standard office desks, thereby promoting collaboration between the occupants.

While these types of spaces appeal to many types of tenants, the tenant improvement costs tend to be rather expensive generally costing from $50-$75 per square foot. We are finding that the tenants that want to be in these types of buildings are willing to pay higher rents thereby increasing an investor’s return.

Investors of properties that are retrofitted into creative office buildings need to be cognizant about the parking needs of the occupants. The standard 4:1,000 parking ratio is generally not adequate. Tenants are generally looking for five to six stalls of parking for every 1,000 square feet leased, as they are able to increase the density of the occupants in the suite due to open area desk designs. Excess on-site parking is a plus, as is the availability of street parking.

As younger employees enter the workplace, there is a growing trend for these types of properties. The days of multiple private offices which foster individualism are being replaced with collaboration, discussion, and a true team spirt.