Chapter 14:  Managing Office Properties

Historical Perspective

l    Construction

     Steel-frame structure and elevators permitted vertical growth

    Office building construction last phase of a real boom

l    Demand for office space increasing as more than two-thirds of work force found in offices--due to movement toward a service economy

l    Future of the electronic office

Evolution of the Suburban Office

l    Interstate highway systems

l    Park-like settings and employee amenities

l    Lower rentals

    Lower suburban taxes

    Less expensive land

    Diminution of services offered tenants

    Accessibility to airports

    Greater security

    Some corporate identity

    Larger labor pool in suburban areas

    Lower-cost parking

Building's Design

l   Enhance physical desirability

l   Maximize net earnings

l   Intelligent building

Office buildings must be flexible to accommodate tenants

l   Measure floor areas

l   Note window treatment, floor coverings, elevators, washrooms

l   If existing building, manager becomes familiar with staff, tenancy, the leases, etc.

Market Analysis

l   Regional Analysis

l   Neighborhood Analysis

l   Absorption Rate

l   Site Selection

Ranking of Office Buildings

l    Grade A structures command highest rentals

    Prestigious tenancy

    Location

    Desirability

l    Grade B are yesterday's Grade A

l    Grade C are older; maintained but below standards-lower-income tenancy

l    Grade D are old, poorly maintained, but habitable

Location

l   Pressure to locate in central business district (CBD)

l   Professional buildings locate at focal points of consumer traffic

l   Clout of large corporations draws tenants

Neighborhood

l   Attractive surroundings raise value of less desirable buildings            

l   Littered streets and unsightly vacancy lots reduce value of beautiful structures

Transportation

l   Parking facilities

l   Access to urban transportation systems

Elevators

l   Location within building

l   Appearance of entrances and cabs

l   Newness and operating speed

l   Synchronization of departure intervals

Corridors

l   Floors

l   Illumination

Office interiors
Layout factors

l   Number of windows

l   Depth and width of offices

l   Decoration, wall finish, ceiling height, etc.

Tenant services

l   Cleaning, security, after-hours access to building and HVAC systems, etc.

l   Special amenities

Management

l   Efficiency of services

l   Level of maintenance

Other Issues

l   Prestige of address

l   Appearance

l   Lobby an important factor

Measuring rentable space

l   BOMA method

   Uses rentable area includes inside dimensions except elevators, stairwells, and utility shafts; restrooms, janitor closets, and utility rooms

   When entire floor is occupied by a tenant, then the rentable area equals the usable area.

   R/U ratio used to determine rentable space in an office which occupies less than the entire floor

l   New York method uses outside dimensions to compute the rentable area.

l   Error of one percent may cost thousands of dollars

Establishing rates

l   Base rate

   Determine minimum rate to offset debt service, taxes, operating costs, and owner's return on investment

   Adjust rate to current market

   Use base rate and make plus or minus adjustments for each space depending on location in building

l   Lease escalation clauses

Marketing Office Space

l   Obtaining prospects

   Determine if building suited to specific use

l   Facilitating space inspection

   Rental office personnel should know which prospects have been contacted

   Model office

Arousing interest

l    Sketch of proposed building

l    Promotional pieces should incorporate several arguments

    Price advantage

    Increased efficiency

    Increased prestige

    Economy

l    Should become familiar with prospect's business

l    Personal contact

Tenant Qualification

l   Business reputation and strength must be examined

l   Service requirements of prospect may be too demanding

l   Space requirements

   Growing business may indicate temporary occupancy

   Present tenants may need to expand

Space Planning and Tenant Improvements

l   Office landscaping--may reduce sick building syndrome in winter

l   Standard tenant improvement allowances

   Telephone jacks

   Doors

l   Use of high-technology office equipment calls for longer-term leases

Leases and Lease Negotiation

l    Rental adjustment

    Operating cost escalation clause

    Index escalation clause

l    Utilities and services provided must be contained in lease

l    Options

    Option to expand

    Renewal option of same lease

    Option to cancel

Maintenance

l    Elevator operation

    Office buildings usually higher than residential so these elevators travel more miles

    Must be positioned for minimum time between elevators.

l    Cleaning

    Most cleaning done at night beginning around 6:00 p.m.--may present additional security problems

    Janitors should be well trained

Ongoing Security Program

l   Attention to all exits and entrances

l   Security systems

   Locking washrooms

   Identification cards for night personnel

   Monitors

   Locking off floor access by elevators after hours

l   Plans for emergency situations (i.e., bomb threats and fires)

   Evacuation plans distributed to tenants

   Plans permanently posted in key locations

   Standard procedure of reporting security breaches

Medical and Dental Arts Buildings

l    Now located near hospitals or outlying commercial centers

l    Tenant improvements main concern

l    Cleanliness is of utmost importance

    Higher maintenance costs

    Longer operating hours

    Special staff and security

l    Prospective tenants other than doctors and dentists--Pharmacies, Laboratories, Technicians, Physical therapists

Legal Arts Buildings

l   After-hours accessibility

l   Convenient facilities may attract tenants from prestige office buildings

   Law libraries

   Bar association headquarters

   Special conference rooms

   Secretarial services