Improvements White Box Space

Improvements | White Box Space

What is a white box space? A question like this may come up from a tenant that is looking to occupy a retail space or office space in Austin. White box is defined as an improved space that is “vanilla” , it really does not have any amenities or tenant specific improvements to the premises. Let’s think of a space that is completely unfinished. Minimum attributes do exist in a white box space such as

  • Electrical
  • Drywall- Sheetrock – painted white
  • Plumbing- restroom areas
  • HVAC – typical for office building space
  • Duct work-sometimes

Every tenant has their own look, just like you have a your own look when it comes to the way you dress. A white box allows the tenant to start with a blank slate and renovate it with a new look. Permitting does come into play depending on what the tenant wants , it could include many things such as : Relocation of HVAC systems, lighting , sprinkler systems, exit doors etc..

 

Costs of Improvements for White BoxWhite Box and Tenant improvements

Costs of improvements seem to be a grey area for most people and it is usually under-estimated. Trying to provide some clarity on costs of improvements even for white box solutions can be a bit tricky. Here are some guidelines for costs of improvements. 

  • HVAC unit replacements depending on the tonnage? $5000-$8000 per unit- this is typically for retail if your unit goes out while you are leasing the space
  •  Drywall $5 to $10 per linear foot
  • Drop ceiling $4 a square foot
  • Lighting $4 a square foot
  • Restrooms $8000-$15,000 (if it is a new restroom)
  • Flooring $4 a square foot
  •  Architect design $3 a square foot
  • MEP- mechanical electrical plumbing $1.50 a square foot (upper range)
  • Management fees for construction if you want it – 4-5% of the construction costs
  •  Permitting costs : Demo permit $250 where as a full building permit is $1500
  •  ADA review is require on projects larger than $50,000

Texas Department of licensing and registration requirements exist for projects as well and will cost up to $1,500.00

 

 

Austin Office Market -End of Year 2018

Austin Office Market | End of Year 2018

 

During the first half of 2018, the Austin office market was relatively flat.  Towards the end of 2018, the office market actually made a rebound. Austin vacancy rates did go below 10% , lower vacancies translates to higher lease rates.  New construction commenced for the office market in 2018 due to the steady demand.  For 5 straight years Austin’s office market has had over 1M square feet of space occupied.

  • Vacancy rates: Q3 10.2% , Q4 9.6% (Austin Metro Area)
  • Highest vacancies for Q4 2018: Round Rock , Northeast and Southeast Austin

Impact on Expenses for the Office Market and Lease Rate

Occupancy in Austin

The Office market will see continued pressure on expenses moving into the near future. There was a $0.20 cent plus increase in expenses from the third quarter of 2018 moving into the fourth quarter of 2018. Tenant demand remains solid moving into 2019 with forecasts calling for over 8 million square feet of demand. Lease rates for office space moved upward to $36.00 gross per square foot per year.  Gross rates are defined as the base lease rate plus NNN expenses included. Demand consisted of other types of businesses followed by technology type companies.

Round Rock Incentives

Round Rock Incentives

Summary taken from Round Rock Chamber of Commerce

The City of Round Rock and the Round Rock Chamber are offering customized incentive packages for relocation and expansion of businesses. Assistance may include tax abatements, waivers of fees, job training , and fast permitting. Here is a summary of the incentives on the table:

Tax AbatementsAustin Growth Population

Tax abatements are incentives being offered by Round Rock Texas for new businesses and existing expansions, included in this are personal property tax abatements associated with real property. If your business is making improvements to a facility or adding new equipment that add tax value those improvements may be considered for an abatement.

Financing and Grants Possible

Round Rock has a chapter 380 government code that provides authority to grant a loan of city funds to promote economic development. A 380 grant would be in the form of a municipal sales or property tax rebate. Performance based cash grants can be offered on job creation, capital investments and other factors as well.

Round Rock Incentives with Permitting and Job Training

Permitting incentives to fast track a project exist. Local officials can customize a development time table for businesses requiring and aggressive build schedule. Round Rock touts this as a distinct advantage versus their neighboring towns. The Round Rock Chamber can assist companies locating or expanding in Round Rock by securing state-provided job training. The Texas Workforce Commission offers the Skills Development Fund and other training to finance customized job training provided by public community and technical colleges. Please see the Job Training Resources page for detailed information.

For help with relocation and expansions, Shire Commercial has been helping clients since 2004 to locate their businesses.


Gross and Net Leases

Gross and Net Leases for Office Space

No matter which type of business is reflected, the commercial real estate lease is a binding agreement created to defined the terms of occupancy for a tenant. Bottom line, most commercial real estate leases whether they are gross or net leases are drafted to offload as much exposure from the landlord onto the tenant as much as possible. It is for that reason that a tenant should understand that searching and negotiating a lease thru a brokerage like Shire Commercial, is not the whole enchilada.  A seasoned broker will offer you as a Client more services that just finding you a space, anybody can do that.  On top of lease reviews, a good broker who represents your interests will point out potential issues in a lease and recommend that you consult a legal authority for more detailed review.

Gross vs Net Leases Commercial Real Estate Broker in Austin

Roughly speaking, there are 2 main types of leases for office space in the Austin area, they are gross and net leases. While both may represent some risks for tenants, the gross lease offers the biggest chance for the lease language to hide some pitfalls . Why? This is because Net leases are written to have the tenant responsible for pay for property expenses beyond rent  to include taxes, insurance and maintenance , almost as if you as the tenant own the property.  A Gross lease on the other hand detail out the tenant expense beyond rent in details that need some attention right away. These attentions to detail include: units of measurement being used and calendar years being referenced within a lease.  Having a firm grasp of the details within a Gross lease versus a Net lease is important for a tenant to understand.

Austin Office Report Q3 2018

Austin Office Report Q3 2018

Lets take a quick snapshot overview of the Austin Office Report for Q3 2018,  activity compared to the past couple years is slowing a bit. Vacancies for office space properties have remained in the 9.5-10.5 % range for the 2018 year and moving into Q4 are hovering in at 10.2%.  Lease rates on average have moved down a bit but not significantly and are still coming in at over $35 per square foot per year as an all in (Full service gross) rate.  Near term the forecast is continued demand and occupancy consistency.  Tenants looking to lease office space according to our Austin Office Report should expect operating expenses to be higher overall , recent forecasts show an increase of approximately 0.20 cents per square foot per year.  Subleasing activity is an indicator of consolidation and or a potential slowing in the economy, we have seen more office subleases come onto the market in the past quarter.  Subleases can provide an advantage to start up companies or businesses that need a shorter term lease, the downside to subleasing is that there are no tenant improvements typically.

Development and Construction

The Austin office report for Q3 2018, does show year to date activity to be slower than previous years.  Approximately 200,000 square feet of new construction has commenced in Q3 2018 which brings the current development construction to over 4M square feet of additional space. 

 

Commercial Real Estate Broker Austin

Why you should hire a Commercial Real Estate Broker in Austin?

Whether you are a Buyer , Tenant or Seller of a commercial real estate property in Austin , wouldn’t you need a trustworthy professional to help you get a reasonable deal and help you avoid problems? There are plenty of situations over the past 15 years, where we have encountered the “do it myself” folks only to hear that they now have issues and need help, perhaps a bit too late?  Simple examples such as executing a lease that is way over market and now they are stuck and can’t sublet cause its too pricey.  They didn’t know what to look for in a lease document and now they have to pay much higher NNN expenses or they are liable for HVAC replacements.  There are many more examples that we can fill this article with.  So let’s discuss why its a smart move for you to hire a Commercial Real Estate Broker in Austin?

What is required by Brokers?Commercial Real Estate Broker in Austin

A professional commercial real estate broker in Austin must be licensed by the Texas Real Estate Commission and take continuing education every 2 years to renew their license.  You can’t get that looking at Loopnet like everyone else, there is expertise and knowledge from direct experience that has to be gained.  A Broker has a fiduciary to their client, that means represent their clients interests above their own first.  Does that mean a commercial real estate broker just does whatever their client tells them to do? No, it does not if a Client asks a seasoned professional to do something that is out of line, unreasonable they owe it to their Clients to let them know that it isn’t a good strategy and why.  Think about it, what is the reason to have experience and training if everyone knows more than you do, the bottom line is they don’t although the internet may trick you into thinking so.

Avoiding Problems

Filling our promulgated forms correctly is critical, which by the way costs the commercial real estate broker money just to have access to these. As a client, you get them for free! What a Deal! We have exclusive access to over 100 different forms , as a buyer, tenant or seller you have access to a few if you go it alone.  All commercial real estate brokers in Austin are supposed to abide by the National Association of Realtors Code of Ethics , the Code of Ethics holds commercial real estate brokers to a higher standard of professional behavior.  A Commercial Real Estate Broker in Austin has access to subscription only tools that we an pair with our experience of the local market and its trends to make sure negotiations are in your favor.  Don’t know what to look for in a For Sale contract, lease contract or listing agreement? We do.. although we cannot provide legal advice on language or re-write provisions we are able to point out the warning signs for Clients.  So, if you have a property for sale, property for lease, looking to purchase or looking to lease why not get an advantage to your team today? We are here to help, we help you, then we help ourselves in that order.