Almost without exception, building or modifying office space takes longer than our clients expect. This underestimation can lead to significant negative consequences – including not moving out prior to lease expiration (a major financial impact) and reducing optionality by eliminating otherwise viable space options. The purpose of this article is to explain what is required to construct a new office space or modify an existing installation (it’s more than just moving a wall – this is not The Sims 😊). I will also provide suggestions to make the process easier for tenants.
Whether it’s building new space or retrofitting an existing office, construction typically entails a timeline of at least 5 months up to 12 months beginning from when you first tour space. Below is an overview of what most construction projects entail.
- Test Fit & Scope Development: During the space evaluation and negotiation process, it is critical for tenants to study the suitability of a space and identify the work required. An architect leads the process to evaluate potential layouts, including furniture options to determine the achievable headcount and other goals of the space (adjacencies, lines of site between team members, separation of client vs. working space, etc.). Depending on the scope of the project and who is completing the work, a project manager or contractor can help evaluate cost implications as part of the comparison of space options. Required time: 2-4 weeks.
- Development of Construction Documents (“CDs”): The architect and engineer must coordinate to prepare detailed drawings from which contractors can bid on a project and ultimately build the space. Required time: 4-12 weeks.
- Bidding & Permitting: Once CDs are finalized, they are sent to the Department of Buildings for review and approval to obtain building permits. Simultaneously, the party running the construction process will “bid out” the job to various contractors. Required time: 3-4 weeks.
- Construction: After all of the above steps are completed, you can then begin construction. The actual time it takes to build or retrofit space ranges but can take anywhere from 3-6 months (or more for very large users.)
With the understanding that construction requires significantly more than the physical build or retrofit, below are steps tenants can undertake to ensure a well-run construction process:
- Start Early: To evaluate all alternatives, companies should start the process early (this means 12-18 months for tenants under 50,000 sq. ft. and 18+ months for larger users, with that timing increasing proportionately to the size of the space.) The first step is to hire a real estate broker. Since many companies will want to interview various brokers before selecting their partner, this requires having the necessary meetings well in advance of when a decision needs to be made. For example, a 400,000 sq. ft. law firm with a lease expiration at the end of 2021 hired their real estate broker in August of 2017 and was having meetings/interviews in advance of that.
- Build Your Team: After hiring a broker, tenants should hire an architect and a project manager. If a tenant hires the project manager first, they will help arrange and lead the architect interview process. Once an architect is hired, they will work with the tenant to create a “space program” which will detail the amount of specific space the tenant needs (i.e. number of offices, conference rooms, open areas, leisure space, etc.). The final result of a space program is the determination of the tenant’s future size.
- Space Search & Final Term Sheet Diligence: After the ideal size is confirmed by the space program, the next step is to conduct market tours and negotiations to ultimately finalize a term sheet. During this process, it’s prudent to work with a project manager to ensure that all technical items related to a build out are adequately covered in the term sheet. For example, if the tenant is doing the build, it needs to ensure that the space is going to be delivered in a way that allows it to commence its work. Similarly if the landlord is doing the construction, the project manager will help ensure the “Landlord’s Work” section of the term sheet encompasses all technical aspects of its build.
- Develop a Construction Schedule Early: In any build or retrofit scenario, tenants should understand the construction schedule as soon as they begin negotiating the lease. While you cannot begin construction until after a lease is signed, if a tenant is crunched for time there are ways to do some of the pre-construction work (i.e. developing CDs) in advance of lease signing. Regardless of who is leading the construction – the tenant or the landlord – tenants will have weekly construction meetings with the party leading the process to ensure all milestone dates are met and long-lead items are accounted for. For example, furniture is a long-lead item for tenants, so the project manager should work with the chosen furniture vendor to ensure that furniture is ordered with enough time to be installed and wired before move-in. Furniture is just one of the many elements that need to be planned and coordinated among multiple vendors before move-in (others include security, installation of A/V equipment, etc.).
While I know that more is required from a permitting and logistical standpoint than just moving a wall, even as a broker doing this for 6+ years I too am sometimes surprised by how long construction takes. As evidenced by the above best practices, it’s important to start early and give yourself the requisite time to complete each step of the construction process.
Below are sample construction timelines for the majority of companies in New York City by size. These should be read as guidelines and a broker representing a tenant should cater the timeline to its specific situation. Again, since hiring a real estate broker is the start of the process, companies should meet with various brokers well in advance of their lease expiration to leave enough time to evaluate all alternatives when considering their future office.