Expand Your Office Options with Flex Space - Los Angeles Warehouse & Office Space

April 04, 2007 04:17

From the Desk of John Scatoloni,
 Managing Director, Encon Commercial

What alternatives do office space tenants have in major commercial markets such as Los Angeles when rates are spiking and vacancies are low? You could call today's market, ownership ascendancy or more appropriately a tenant's perfect storm. Either way, class "A" office space tenants may have little or no alternatives except scale down in square footage, find efficiencies in office layout or simply absorb added market premiums. For the rest that utilize class "B & C" office space, that is to say, older office buildings or garden style suburban market complexes, there is a viable alternative to full service office rates going sky high. The alternative is "Flex Space", an industrial building with office build-out, and therein lies significant savings. If pursued correctly, a flexible land lord can help you achieve across-the-board cost reductions, or better yet, increase your square footage while maintaining a class "A"corporate image. Bottom-line savings may just require a little creative thinking outside the office box.

Let's discuss the trends in office and industrial space construction in Los Angeles. Construction is still catching up with office demand, especially for class "A"space with few new signature buildings scheduled for 2007. Not surprisingly each sub-market is showing demand outstripping supply. On the other hand, concrete tilt-up industrial buildings are incorporating features that not long ago belong exclusively to the office environments, i.e. floor to ceiling windows, double or triple sided glass lined office areas, parabolic dispersed lighting and finishes that rival a typical accountant's office. It is more common than not to see developers invest in office standard build-outs within warehouse space, making the once austere industrial work space a "turnkey" professional layout for administrative functions. In fact, the same developers are engaged in much of this cross-over construction between these two commercial product types. Nowhere is this more evident than the following list of office space users in the industrial market, including air-freight, import /export, research and development, and added value oriented logistics companies. Precisely these market segments have spearheaded a higher level of office finishes, which are demanded by administration employees.

At Encon Commercial, we find a sense of uncertainty among office tenants weighing their option to renew or find alternative space. An often overlooked option is the Flex Space scenario. Laying out the cost advantages associated with Flex Space verses office space and what tenants can expect to achieve economically verses current office assumptions are effective ways to underscore these advantages.

Let's talk about what an office space tenant can shed at the corporate tower and subsequently what a tenant will pick up at the business park. Shedding the corporate tower environment can directly impact a company's fixed overhead. At Encon Commercial, we often see up to a one-half reduction in rental rates for like size space freeing up cash for adding more employees or increasing the work-space at the same rate. In light of a 10-20percent increase over current rates for office tenants a reduction at a Flex Space Park is unexpected but welcome news. Flex Space also offers advantages that office landlords reserve for larger tenants, but are common place in Flex Space parks, including corporate signage or monument advertising for corporate identity. Flex Space often allows the "big fish in a small pond" advantage for moderate sized companies that can easily achieve turnkey office improvements for a shorter term lease commitment. Flex Space tenants also benefit from reducing the burdensome cost of employee parking at class "A" office buildings, as most Flex Space parks offer free surface parking and overflow at no cost. And, inherent in the lease structure is freedom from the ambiguous load factor in class "A" office space that requires one to recalculate the usable (smaller) versus the rental (larger) square footage, in which a tenant always get less square feet than paid for monthly. Finally, if technology and security are an intricate part of your endeavor, the Flex Space alternative has completely caught up with the high speed data and professional security systems that class "A" office buildings currently offer. As you may gather here, the economic details are stacked in the tenant's favor and are too numerous to detail in brief.

Illustrating an example will bring structure to the argument. For instance, Armstrong Engineering, based in Pasadena California, recently engaged Encon Commercial to secure office space for their corporate offices, January 2007. Armstrong Engineering, a seventy-five year old corporation, has experienced numerous peaks and valleys in market rates and was faced with a heated Pasadena office market climbing to new rental rate highs. As rates for office space eclipsed $3.50 per square foot per month, Armstrong Engineering asked themselves what value is being achieved with a passive, go-along attitude towards rental rates. In addition, at what point should a mature, stabilized company keep class "A" operating space part of the equation. Could Flex Space maintain the corporate identity and lower overhead in the process? The answer was an overwhelming "Yes" due to the fact that many of the Flex Space parks are located within a 10-15 minute drive from the Pasadena central business district.

The achieved results are noteworthy, including an overall reduction in overhead expenses. Negotiating from a position of strength, Encon Commercial achieved a monthly rental rate at under $1.20 per square foot, per month for "turnkey" office improvement, free rent and a laundry list of added benefits. Additionally, Armstrong Engineering added to their image with direct boulevard signage, corner visibility and dedicated parking at no charge for each employee. This example further illustrates that office space is image sensitive and often cost prohibitive, both forces that drive office corporate tenants to high priced buildings. If part of your business plan includes standard and functional office space without the frills, Flex Space may be a viable option to consider. Ask Encon Commercial regarding office and industrial space in Los Angeles, we may be able to help your creative side find a Flex Space fit. At Encon Commercial we recommend adding the Flex Space option to the site selection process to gain valuable comparative insight and possibly a windfall of savings.

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