For real estate developers, regardless of whether they specializing in speculative or built-to-suit spaces, constructing the shell of the building is largely the same. The decisions involved with the spec space are approached differently than space that is fitted out for a specific tenant. Knowing how to construct a spec industrial space that will compete in the market and appeal to a range of tenants is something most developers must work closely with their contractors to deliver.
On the tenant side, things can be different. Most Tenants will have less experience with construction projects, specifically building out their own space. Tenans may wonder what to do next after singing the lease for a space – particularly when it’s a spec building that’s already been designed to a certain point. How can tenants anticipate costs and finish the process so the space meets the needs of your industrial operations?
Things have the potential to get complicated. For example, a national company that chooses to do a tenant retrofit on a cold storage warehouse may have experience doing this elsewhere. Unfortunately, they may not be as familiar with hyper-local nuances such as constrained labor conditions in the South Florida market. This is not uncommon.
Here are five major factors to consider when estimating the cost of your potential buildout:
1. Lighting
2. Dock Equipment
3. Expandability
4. Storage Requirements
5. Timing
LIGHTING
When it comes to lighting, look at what the building has now. And then consider what you will have to do to get it to a level that will suit your needs. Does it need to be highly automated, like an Amazon facility? If so, you'll have a lot of racking and robotic equipment that doesn't need a lot of lighting so you can concentrate the lighting in the areas where the workers will be located. Conversely, if it's a food storage facility with forklifts, you will need more lighting.
You'll also want to consider the energy consumption of your lighting design. The overall building must fit the qualifications of the energy model. How much power is the building consuming through glass, walls, lighting, etc.? Is there are threshold and what are the implications on the other systems? For example, if you're reducing the amount of insulation, you may need premium lighting.
DOCK EQUIPMENT Many industrial users are choosing to upgrade doc equipment for safety reasons, not just going from a mechanical system to an electronic, but choosing premium manufacturers. This includes both the lift system and the dock restraint system. There is no industry standard or requirement, and the cost difference can be up to 2.5x the manual system. However, when weighing the upfront costs against the risks, they believe it's worth it. Further, the comfort and safety that these upgraded systems offer are more attractive to workers. If you decide to upgrade your system, you'll want to make sure the spec space you've selected is roughed in for an electrical system.
EXPANDABILITY
What are your plans to expand, how and how soon? Expansions can occur within the four walls of the existing building, where you may sign a lease for less square footage, add a partition and receive the first right of refusal on the remaining space. Or, if you're already taking up the entire building, is there room on the site to add on to the building itself? You'll want to consider your expected growth plans, square footage requirements and the implications on your operations.
STORAGE REQUIREMENTS
As the tenant, the product plays a big role in how you will build out the space. Mechanical systems are different when storing tires than washing machines. Can you stack the product? What clear heights and racking system will you need? Are you dealing with high hazard materials, like tires or aerosols? The flammability and burn characteristics affect how the building is ventilated, the racking type and how high you can go, as well as the sprinkler and fire alarm requirements.
TIMING
This factor weighs into how the systems are designed and the building is priced. If the building isn't designed for the tenant upfront, the construction team will have to retrofit some of the systems. This is where you may see a lower lease rate for the shell of the building, but your fit-out costs will be higher. The earlier you can get into the building and influence the design based on your product, the better when it comes to incurring construction costs.
If you choose to lease only a portion of the facility, you will likely experience some negotiation with the developer, as they will need to consider other building tenants with how the building is designed and finished. Still, the earlier these conversations can happen, the better, for you as the tenant.
For most tenants, it might be better to have developer to the build out, if that’s an option. Even if they have to pay a fee to developer. Reason is that construction might take time away from running a business and hurt revenues and profits. Alternatively, tenants might consider hiring a project manager to oversee the build-out of the space.
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Are you an industrial tenant in the market for new space? Contact us today. Our team would be excited to discuss the leasing process and guide you through the negotiations of a lease with or without a build out.
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