Published April 14, 2009 in the COLORADO REAL ESTATE JOURNAL
Spec Suites Can Benefit Both Tenant, Landlord
by Wendy Duignan

IT'S ALWAYS A VICTORY for both landlord and tenant when a deal gets done quickly. Unfortunately, that doesn't always happen. The traditional leasing process with traditional negotiations between landlord and tenant can sometimes be an exhaustive and disruptive endeavor for both parties, especially in a tough market. But there are "unconventional" options. One of those options is the spec suite.

A "spec"-or speculative-suite is an office space already built out by the landlord before determining what specific tenant might ultimately inhabit the space. It's not a new leasing strategy, but certainly an effective one during economic cycles when landlords are highly motivated to lease. This happens to be the case right now in metro Denver.

The concept is rather simple. Landlords designate unoccupied spaces within their buildings and have them designed and built out quickly, speculating that a prospective tenant will find the suite adequate "as is," thereby streamlining the negotiation process and eliminating the construction component altogether.

Some spec suites are built contiguously with a "modular" configuration, catering specifically to tenants who need to occupy rapidly, but still require room for expansion. Others are stand alone suites with relatively standard design and construction features.

Some buildings with odd or irregular core and shell characteristics are well-adapted to spec space tenants less concerned with what a "conventional" suite my have to offer. And some suites are just difficult to lease for any number of reasons. The landlord's leasing team is well aware of what types of end users lease space in any given submarket and can be an invaluable resource to architects and landlords when it comes down to converting a slow-moving space to a new spec suite.

In any case, it behooves the landlord to build multiple spec suites simultaneously, and in line with the building's established standards. For starters, material costs can be minimized by virtue of economies of scale. And both designers and contractors can standardize their own processes and material selections while allocating labor more efficiently, because the entire process is streamlined for consistency. The result is a tremendously effective marketing tool for the landlord's leasing team without sacrificing quality or aesthetics.

For tenants nearing lease expiration, a spec suite can minimize transition time, and avoid potential holdover costs. Spec suites allow a tenant to immediately visualize its operation in a finished space, rather than having to start the evaluation process with somebody else's vacated office, or worse, a demolished suite without flooring, ceilings or walls. In some cases the spec tenant reaps the additional benefit of retrofitted infrastructure upgrades, like lighting, electrical systems or HVAC. Landlords offer this as a viable marketing incentive to get the space leased faster without passing on the added expense to the tenant. So the tenant gets more for less in a shorter period of time

Moreover, the tenant does not have to live through the build out process, and the property manager, general contractor, interior architect and all the rest of the trades don't have to fret over compressed construction schedules.

The tenant's representative can minimize the building tour exercise if a spec suite proves to be a good fit early in the process. The negotiation is less time-consuming because the tenant finish allowance has already been accounted for. Granted, the tenant is usually responsible for funding its own cabling, furniture and other goodies it might want to drop into its spec suite. But that's a far cry from negotiating the entire deal from square one.

Spec suites aren't for every landlord-or tenant. They tend to run smaller in size, between 800 and 6,000 square feet, sometimes larger, depending on the building's floor plate, the landlord's leasing conditions and market fundamentals. But when conditions are right, they can be a viable win-win option for both landlord and tenant.

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