Suite move

As office workers gravitate back to city centres to work-from-work as opposed to the pandemic-induced work-from-home model, there’s one trend that’s standing out in the market for the fastest-growing demographic of the New Zealand business economy – small and medium-sized enterprises (SMEs).

It’s the “turn-key” private office suite market which is giving occupiers quality office premises in sought-after locations, close to public transport, and with a high level of amenity – both within the building and in the immediate area.

While the “turn-key” phrase may be somewhat redundant thanks to keyless entry systems, the concept of having a move-in ready office is gaining significant traction in the redefined office market.

The benefits go beyond convenience including no up-front capital expenditure and (usually) flexible easy in/easy out leases.

Chris Farhi, Bayleys’ head of insights, data and consulting says turn-key office suites emerged in the market around five years ago, immediately causing a ripple.

“The concept was very novel, and commentators were unsure if the market could justify, or would adopt, the model.

“However, there are already at least a dozen buildings in central Auckland offering these fully-fitted office suites and the market remains hungry for more.”

It’s part of the general flight to quality that was already advanced prior to the pandemic and while data shows that demand in some parts of the office market is down on two years ago, Farhi says the office suites sector remains strong.

“Occupiers are thinking more deeply about the office space they need and how that space reflects their brand and culture, along with what it demonstrates to their staff and clients, and how it slots into operational budgets,” he says.

“These private offices hit the sweet spot between traditional office offerings requiring tenant investment in fitout and shared coworking facilities that offer fully furnished solutions.

“Traditional offices tend to be offered without fitout or with the remnants of fitout from the prior tenant, with the common areas typically having generic ‘base build’ design rather than stylistic cohesion alongside the tenancies.

“Office suites on the other hand typically have higher grade fitout, cohesive design across the common and exclusive areas, and boast more shared spaces.”

Suites are also distinct from coworking spaces which Farhi acknowledges have become more sophisticated over time.

“However, coworking typically has smaller exclusive-use areas and at the extreme, users simply share desks in an open plan office space.

“There’s typically less privacy and less opportunity for the business to have its own identity, but balancing this, coworking facilities may also provide more shared services such as a full concierge or community manager.”

Farhi says landlords are proactively incorporating the turn-key suite model into buildings, with astute building owners being very creative about the ways they can offer a point of difference and add value to an occupier’s lease, while enhancing their own return on investment.

“Those subtleties play out in the design, fitout, and service offerings meaning there can be a bit more art than science in setting commercial parameters,” says Farhi.

“The convenience factor for tenants is high as they do not need to undertake hard fitout (e.g. building meeting rooms), which given the current supply chain challenges, is definitely a drawcard.”

The market is more than ready for the upper-end of the market office suites that take away the logistical hassles of organising fitouts and that allow for a higher level of amenity for staff than might otherwise be in reach, says Bayleys Auckland senior office leasing broker Polly Markus.

“It means businesses can hit the ground running from the day they move in,” she says.

“Removing the pressure of an upfront outlay for fitout costs takes the immediate financial pressure off, while there’s none of the down-time or distraction associated with engaging contractors to install a fitout prior to occupation.

“A fully-fitted out office suite in a polished and well-located building gives businesses the opportunity to occupy the sort of spec’d space that traditionally may only have been accessible to larger companies with deeper pockets.”

Markus says a broad range of professionals including lawyers, accountants, property consultants, managed funds providers, and small tech companies are actively looking for 4-40-person office suites and they’re finding landlords increasingly responsive to their needs.

“Furniture packages can be the icing on the cake, and while IT requirements are usually up to the occupier to sort out, some building owners are also happy to organise this as part of a complete package.”

While Markus says lease costs will widely vary between buildings and from landlord to landlord, occupiers know and accept that they will pay a premium for this upmarket space.

“It’s the cost of doing business efficiently and given the boost in brand perception that comes with being located within these superior buildings with the classy credentials they offer, occupiers actually see it as good value.”

Just as costs vary across office suite offerings, so too do the lease structures or occupation agreements.

“A two-year commitment is pretty standard for office suites within commercial buildings, and it’s generally on a licence-to-occupy basis which differs from a typical lease agreement,” says Markus.

“It naturally details inclusions, payment provisions and usage rights, but the shorter terms are meeting occupiers’ desires for some fluidity in arrangements for the space they operate from.

“The pandemic has heightened this and while both occupiers and landlords want some certainty, there is also a mutual acceptance that flexibility is required from all parties.

“These office suites and the tenure arrangements mean businesses are not limited by a long lease, and if they need to expand, they can often do this within the same building meaning convenience and continuity of business.”

Markus says some landlords offer leasing models that allow occupiers to clip on additional membership options like bar access, or the use of flexi-space when required, providing extra layers of service that smaller office businesses are eager to tap into.

Bayleys Auckland office leasing broker Ben Laing says contemporary office suites are typically 80-350 square metres.

“What we’ve seen recently is landlords taking an office floor, splitting it into several office suites that incorporate one or more internal meeting rooms and a kitchenette, so they are largely self-sufficient.

“In some cases, larger boardrooms might be shared across the floor so the tenants can get cost-efficient access to top facilities that they might not be able to justify alone.

“If you’re comparing actual desk/workstation space – then the cost of the exclusive work area of an office suite is generally higher than for a traditional office, but you’re not doing the fitout, and you additionally have high-quality shared or collaborative space.”

Laing says it appears landlords are becoming more comfortable about upfront investment in furniture, which further elevates the proposition from a tenant’s perspective.

“Changing the sell-in proposition from ‘we will provide furniture if you commit’ to ‘we have provided furniture, and you can view it right now’ is compelling.”

Bayleys’ data across the office market reveals a growing range of price points for office suites – largely dictated by location and level of amenity.

“Originally, we saw these suites focused squarely at the premium end of the market, but now there’s an emerging array of more affordable options,” says Farhi.

“There’s also growing interest from tenants in having simplicity around pricing proposals so they can get more predictable operating costs to better compare options.”

The fully-fitted office model is yet to take off in the regions, although Bayleys’ leasing teams say with construction challenges, supply chain delays and a desire for office occupiers to “stick to their knitting”, it could be a matter of time before it becomes a logical and practical model in the smaller centres.

“We are observing a flight to quality amongst occupiers across New Zealand and we see high-quality office suites helping to fulfil this need for small and medium-sized businesses,” says Farhi.

Download full article (PDF)   

Subscribe to receive the latest commercial news and insights from Bayleys Total Property