The Classification of Raleigh Office Space

Raleigh Office Space is typically classified into two different categories:

New Construction:  Space that has never been occupied, regardless of when it was built; and

Second-Generation Space:  Space that has been occupied by a tenant, regardless of how many prior occupants there have been.

NEW CONSTRUCTION

Office space within a newly constructed building is typically not finished.  The owner purposely leaves everything unfinished, knowing that tenants will want things to match their own specifications.  Instead of finishing the space, the owner budgets money to finish each space.  This is typically done in one of two ways:

1) The first way is that owners often budget amounts of installed tenant improvement materials to create the finished office space.  These materials are specified in what is known as a Tenant Improvement Work Letter.

The Tenant Improvement Work Order

New, unfinished space is provided with a list of materials that the owner will pay to have installed.  These materials usually include a number of components such as:

  • Doors
  • Specific amounts of drywall partitions
  • A ceiling system
  • Lighting
  • HVAC distribution components (ducting, boxes, and registers)
  • Electrical outlets
  • Boxes and conduit for communications wiring
  • Paint, carpet or other floor covering, baseboard molding

How much of this material is offered to the tenant is based on the number of square feet leased; for example, “one door for each 300 square feet, one electrical outlet per 125 square feet”, and so on.  The Tenant Improvement Work Letter is often subject to much negotiation.  Buildings offering a Tenant Improvement Work Letter should be able to produce a list of improvement items they’re offering in clearly defined amounts.

2) The second way that new construction often budgets for tenant improvements is to offer an allowance.  The dollar amount of the allowance is based upon the number of square feet being leased and is called the ‘Tenant Improvement Allowance’ or ‘TI Allowance.”

Example:  The TI Allowance could be stated as:  $25 per square foot.  Of course, the range of the TI allowance can be quite broad depending on building costs in your area, how competitive the market is, the intended image of the building and more.

When a new tenant’s needs exceed the budgeted amounts, then the overage needs to be negotiated between the parties.  the budgeted amount is referred to as the “building standard amount and quality”.  Tenants can exceed the building standard in both the quantity and the quality of the improvements and this is referred to as the “over standard tenant improvements.”

Over-Standard Improvement Examples

  • Interior glass partitions
  • Fabric wall coverings
  • Custom lighting
  • Custom cabinetry
  • Kitchens or plumbed break rooms
  • Executive washrooms or showers
  • Built-in projection or audiovisual equipment
  • Space-saver file systems
  • Supplemental cooling
  • Computer rooms

SECOND GENERATION SPACE

If the property isn’t ‘new construction’ then it is ‘second generation space.’  All previously occupied space is second-generation space.

Generally speaking, owners do not budget money in advance for remodeling space that has already been occupied.  But in softer markets, or as an incentive for high-quality tenants, they are likely to pay for some tenant improvements.

A Word of Caution

When dealing with second-generation space, it is also important to know about building and fire code compliance issues and other deficiencies in the existing space that might need to be corrected if a permit for construction is required.  You may be tempted to believe that only a few walls and doors need to be added to make the space suitable for your needs.  However, since all construction requires a building permit, any changes to a space could trigger a number of compliance issues.  It is best to ask what code compliance issues are known to the owners or their representatives, so there are no surprises when it comes to tenant improvement costs.  It is not uncommon to find that  the owners have budgeted money for tenant improvements because they already know that compliance issues exist.  Many times, what they have budgeted barely covers enough to bring the space up to code and leaves nothing for additional improvements.

The same is true for deficiencies in meeting the requirements for the Americans with Disability Act (ADA).  You can usually expect that, unless recently renovated, older properties will be required to make some compliance and ADA upgrades when applying for a building permit.

Questions

  • What is being offered for tenant improvements?
  • How does the tenant want and need the space to look and feel?
  • Can the tenant’s needs be met by what is being offered?  If not, what will it cost to build out the space to meet the tenant’s needs?

The Importance of Life Safety with Raleigh Office Space

Life Safety is an aspect of Raleigh Office Space that is in a state of nearly constant change.  Laws are frequently added, updated and amended.  The goal is to make sure that buildings are safe for those occupying them and most of the laws do a good job for ensuring a level of safety.  Unfortunately, they add a level of complexity to what you do.  At a bare minimum, you need to know what some of today’s basic requirements are and know enough to ask about a building’s compliance with those basic requirements.

Some things to look for, include:

Exits and Stairs:  One basic requirement in almost every area is there must be multiple ways to get off a floor without using the elevators in emergency situations.  In most areas, this no longer includes external fire escapes.  In addition, the stairs must be a sufficient distance apart to provide adequate access for all of the occupants of the floor.  It is easy to assume that all buildings have two stairwells, but the truth is that many older buildings and buildings that are industrial conversions to office space may be not be compliant.  This could be because the building was vacant for a while or the same tenant occupied it for many years.  But when a permit is pulled for improvements, code compliance issues arrive.

Fire Technology:  Another life safety category to be aware of includes all of the technological responses to fire.  The building must obviously have working fire alarms, but these days, strobe lights are used to augment sound-emitting fire alarms to ensure that the hearing impaired are included in the alarms.  In many older buildings that isolate the elevator lobbies are also usually required in the event of fire.  If you step off an elevator and there is no smoke vestibule with doors that automatically close when the alarms go off, then you know there’s probably a problem that needs to be updated.  Sprinklers are also generally a requirement in modern office construction and sprinkler retrofits can be required when remodeling a tenant’s space.  Often, sprinkler heads need to be changed to a more modern type when space is remodeled.  You don’t need to be the world’s leading expert in sprinkler heads and fire safety, but you do need to know enough to ask the questions.  Find out what the fire codes are in your area and ask building owners if everything is up to date.

Signs:  Proper life safety postings and signage are generally required.  Exit signs, escape route maps, and maximum occupancy signs are examples of some of the things that are requirements in most Raleigh commercial real estate.  These are relatively small things compared to some of the other life safety requirements, but important nonetheless.  Their absence can be a sign that there are other compliance issues.

American’s With Disabilities Act (ADA) Compliance:  In the United States, another aspect of life safety involves the things necessary for compliance with the Americans With Disabilities Act, or ADA.  There are people in your community who are experts and can help you with ADA compliance.  Generally speaking, wheelchair access to buildings with either ramps or lifts is required.  Doors, hallways, and other spaces need to be wide enough to allow for wheel chairs.  Bathrooms need wheelchair access and the appropriate grab-bars and lower sinks.  Braille signs need to be present, and more.

Questions

Some important questions to ask include:

  • Are you fully compliant with the latest fire and ADA codes? 
  • What kind of sprinklers and other emergency apparatus are present?
  • How long were the previous occupants here?
  • When was the last time a building permit was pulled for this space?