Should Office Tenants Hire an architect?
Under the right circumstances having office tenants hire an architect can save time and money. When does it make sense, and how much do architects cost?
For tenants searching for new commercial office space the process can often be complicated and time-consuming. After hours of touring properties and narrowing down options the first phase of negotiations begins. During negotiations for leasing commercial space the tenant improvement allowance is an important consideration. A critical, and costly, component of the TI allowance budget will be architectural fees. Given the high cost of architect fees, many ask the question: Should Office Tenants Hire An Architect or use one provided by the landlord? Several factors will determine whether this makes sense or not. These may include the overall complexity of the construction work required, and the desired amount of interior design needed to make the space ready for occupancy.
Before we dig into the reasons for and against hiring your own architect let’s review the basics of space planning.
What is Space Planning AND HOW MUCH DOES IT COST?
Typically when an office tenant locates a suitable space to consider for their business it does not exactly match their needs. The space may require additional private offices, a larger bullpen space for workstations, or a full wetbar and break room build-out. Upon requesting an initial proposal for the space, the tenant will need to provide some clarity on the changes they require in the space. Early in the negotiations the landlord’s broker may offer to have their architect prepare a space plan or test fit. The landlord will usually have a preferred architect to use for this. The architect cost for a basic test fit will be approximately $0.10-$0.15 per square foot. This usually includes a couple revisions to the plan as the tenant and architect fine tune the design. This cost is usually paid for by the landlord as an inducement to engage negotiations with the prospective tenant, and is considered a cost of doing business for them.
The initial space plan does not go into detail about the demo required in the space, or any of the finer points needed for a contractor to bid the work. It is generally going to be an overlay of the office space showing a possible layout to meet the tenant’s needs.
Below is an example of a simple space plan which illustrates how a tenant might occupy and utilize a prospective office space. You can see that the architect has dropped in furniture to help the tenant visualize the new space. For tenant’s planning to use existing furniture, I highly recommend having your furniture vendor provide dimensions or CAD file mock-ups of your furniture to the architect. This will ensure the tenant’s existing furniture will fit the new office.
PRICING NOTES AND MECHANICAL, ELECTRICAL, PLUMBING (mep) PLANS
Following completion of the space plan the architect will need to prepare a set of pricing notes. These notes can vary in form and quality. Generally the pricing notes will provide enough detail and guidance to allow general contractors to bid the work. This is a necessary step to finalizing negotiations because without having construction bids neither party can be confident about the cost of the work to be performed. The process of preparing the pricing notes can take 1-2 weeks, and will cost around $0.50 per square foot. It is important to verify that all “soft costs” including project management fees and architectural fees are including in the final bid summaries at this stage. Soft costs can end up being $3 to $4 per square foot and this can have a serious impact on the TI allowance.
Once a lease agreement has been finalized and executed by both parties the architect will prepare the complete MEP plans. These plans will provide full detail on the demo plan, build plan, instructions for mechanical systems including the HVAC, plumbing, and electrical. They are usually very long documents with a high degree of detail. General Contractors will utilize the MEP plans to fine tune their bids for the project.
Reasons to have Office tenants Hire an architect
So what are some reasons an office tenant may decide to hire an architect?
○ Guaranteed Impartiality: the Landlord will have no influence in the design of the space and specific elements of the design which can drastically affect costs.
○ Workspace Efficiencies: by definition, architects design workplace configuration. Using your own architect allows you to make your space a function of your organizational culture. Whether you’re looking for an open floor plan, office intensive layout, break-out spaces, etc, the architect is tasked with achieving your required needs within the most efficient layout possible. The square footage savings here can more than make up for the added cost of the architect’s fees.
○ Construction Scope Complexity: if the scope of the job is significant it can be very useful to have your own architect managing the details of the design process.
○ Optimizing the Tenant Improvement Allowance: all tenants want to maximize the value of any tenant improvement allowance provided to them. The architect can play a key role in ensuring these dollars are spent how the tenant desires.
○ Ensuring the Space Meets all Governmental Codes and Regulations: it is in the tenant’s best interest to ensure a new office space meets all necessary codes and regulations prior to accepting and occupying the space.
When office tenants hire an architect they can be sure the design and specific elements contained within are aligned with their desired use. The landlord will not have control of the design process and generation of the construction plans. There can be opportunities to secure cost-savings which a tenant’s architect will be more motivated to identify and capture. The tenant can also be assured that the area calculations for the usable square footage are 100% accurate (which is not always the case).
Many business owners want to strategically organize and plan their office space to impact the organizational culture and operations of the business. When office tenants hire an architect it can be a great way to work collaboratively to achieve this result. Whether an open floor plan is desired, or finding space for the right number of private offices, or building a large enough break area to give employees space to unwind, an architect can assist with all of these and more. Finding ways to organize a space layout efficiently can greatly reduce the square footage and therefore lower the monthly rental expense for the business.
Scope of Construction Required for Your Business
If the current as-built layout for an office space is similar to the tenant’s desired plan, it may not be necessary to have office tenants hire an architect. With a small project scope for construction the work could be completed without detailed architectural and construction plans. However, this is often not the case, and as a result the complexity and cost of the deal will increase. A significant change to the space configuration is a key reason why office tenants hire an architect to assist them.
Relocating an office space is a lengthy process and can be disruptive to the business. For a move to make sense the new space should be efficient and laid out properly to accommodate the desired business operations. Changing the layout or configuration of a space can result in numerous construction updates, but may be necessary for the space to work.
Optimizing the Tenant Improvement Allowance
One key component of any office space negotiation is the amount of tenant improvement allowance. This is the amount of money the landlord agrees to pay toward improvements for the space to make it ready for a new tenant. The space plan and construction documents prepared by the architect will greatly influence the costs bid to complete the construction work. It is crucial that tenants and their brokers review all elements of the plans to verify they match the desired outcome. Items missing from the initial plan may require costly change orders after the lease has been signed if the landlord ultimately agrees to turn-key construction. Alternatively, fluff items may have been inserted in the plan which inflate the project cost. The inflated cost will negatively impact the tenant’s bargaining position during negotiations, and the fluff items may be removed at a later stage to save the landlord money.
The tenant’s architect can help identify costly building materials and elements which may not be necessary. Removing these items early in the process can help optimize the improvement allowance negotiated and avoid surprises after the lease is signed.
Adding Intrinsic Value at the Cost of the Tenant
All commercial office buildings are assets to their owners. These assets have an intrinsic value which is affected, in part, by the value of the materials and finishes within them. Within any large-scale construction project to update a commercial office space many decisions affect the value of the space and therefore the building. The key point here is to ensure that all of these decisions align with the tenant’s desired occupancy and use of the space. The building’s architect may not always consider the cost as the first priority when making suggestions. If the tenant is working from a tenant improvement allowance it is crucial to review all decisions and ensure the items are necessary, and cost effective.
Ensuring Space Meets all Governmental Codes and Regulations
Another advantage to using your own architect is to ensure that the newly updated office space conforms to all applicable codes and ordinances. Changes can occur over time and some offices will need to be updated and brought back into compliance. The architect will have key knowledge regarding these necessary updates and how much they will likely cost. As the tenant it is in your best interest to have the space meet code to avoid any disputes with inspectors down the line. Some smaller landlords may not perform all due diligence to ensure the space meets the required codes. Not all owners will file the paperwork to obtain a Certificate of Occupancy on behalf of the tenant. This issue could be uncovered if a city inspector were to inspect the building at some future date. An architect working in the best interest of the tenant would be mindful of all these considerations and more.
Not all commercial office space tenants will choose to hire their own architect – and not all of them should. This decision comes down to the overall complexity of the work to be performed, the amount of tenant improvement allowance at stake, the quality of the building and materials finishes, etc. Generally speaking the larger the space and construction scope, the more to be gained by hiring your own architect.