From a landlord’s perspective, spec suites can be a double-edged sword; on one hand, they might make it easier to lease vacant space, but on the other hand, it takes time and resources to produce one.
However, under the right circumstances, building out a spec suite can be an effective way of attracting tenants to your property.
In order to help you decide if a spec suite is the right decision for your property, we’ve put together this list of pros and cons that landlords should keep in mind when considering whether to pursue a spec suite in one of their spaces.
Pros of Spec Suites
Spec Suites Make Smaller Suites Easier to Lease
The most obvious benefit of a spec suite is that it can be easier to lease than unfinished space in some circumstances.
Not only are they more appealing to the eye when they are toured (for the same reason that staged homes are easier to sell), but the lack of finish out required makes these spaces very appealing to smaller tenants.
Avoiding an office build-out can save these tenants both time and upfront costs. Often, tenants under 5,000 square feet are not out in the market early enough to build out an entire space. Tenants of this size are also typically hesitant to come out of pocket for the build-out, which is becoming more and more as tenant improvement (TI) allowances are not usually enough to cover the rising construction prices.
This means spec suites are very popular with smaller tenants, and usually lease out much quicker than non-spec suites and sometimes at a slight premium.
Spec Suites Help Maintain Consistency
For landlords with multiple properties, spec suites can also be beneficial by providing economies of scale and standardized finishes.
Rather than every space being different and requiring an ever-changing variety of light fixtures, curtains, paint, and carpet, pursuing multiple spec suites can provide consistency across a building, campus, or portfolio. Large-scale owners (REITs, investment funds, etc.) are especially likely to recognize the benefits of spec suites.
Also, when a tenant moves out of a spec suite it usually takes fewer TI dollars to get it ready for the next tenant.
Cons of Spec Suites
Spec Suites Can Create Financial Risk
On the other hand, pursuing a spec suite can also present a financial risk for the landlord. If the space will not lease once the spec suite has been completed, not only is the landlord missing out on income due to the vacancy but is also out of pocket tens of thousands (if not hundreds of thousands) of dollars.
This is why it’s important to ensure that the space you’re considering is a good fit for the spec suite market. In Austin, we typically do not recommend creating spec suites that are much larger than 5,000 square feet, as there is not the same demand for spec suites from these larger tenants.
Changing Office Trends
Additionally, a spec suite could limit the potential uses of a space if done incorrectly. Because a spec suite is essentially the landlord’s best guess as to what the average tenant in the market would like to have in a space, a misjudgment on the landlord’s part can seriously diminish the space’s attractiveness.
For example, if the landlord builds a suite with private offices and a single, large conference room in a market where tenants are looking for flexible space with open floor plans and multiple small conference rooms, it can severely diminish the appeal of the space. This is why it is vital for a landlord to make sure they understand current market conditions before pursuing a spec suite.
As you can see, there are both benefits and potential risks associated with building out a spec suite. When done correctly, spec suites can be a great marketing tactic and get tenants into your property quickly, but It’s important to consider your specific space and property, your unique financial situation, and your market. This can help you decide if creating a spec suite is the right choice for your property or properties.
A qualified leasing broker who knows the market should be able to help you determine if a spec suite makes sense for your project.
Schedule a consultation today if you’d like to speak to one of our project leasing brokers to help you determine if creating a spec suite is the best choice for your property.
Looking for more ideas on how to best market your property for lease? Check out these helpful articles:
- Broker Events for Property Marketing: Pros and Cons
- How to Master Email Marketing for Commercial Real Estate
- Pros and Cons of Offering Tenant Rep Incentives
- How Much Does It Cost to Market a Commercial Property?