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Virtual Build Outs Are Changing the Way Companies Shop for Office Space

We all know that the future of work will be different than it was pre-pandemic. For the property industry, there is one important unanswered question. Are commercial property owners ready to accept that 86 percent of companies now see flexible office space as a key component of their future real estate strategies? As work goes hybrid, the key word here is flexible, which in today’s work environment applies not only to employee work schedules and locations, but also the requirements for the physical office. 

Companies are focused on retaining and recruiting talent and they’re looking to their offices for help. They want an office that can make coming to the office desirable without forcing their people to be in a certain place at a certain time. Google is a great example of this trend, as the pioneers of the open concept office are now trying to “reinvent office spaces to cope with workplace sensibilities changed by the pandemic.” The thing is, Google has all the money in the world to make this work for them. For everyone else, the task, and the risk of getting it wrong, can be fairly daunting. 

As the rest of the world tries to respond, landlords find themselves needing to innovate. They need to prove their offices can accommodate new demands for flexibility, without burdening themselves or their tenants with possibly expensive and time consuming build outs. When recruiting new tenants, landlords now have to prove a space can work perfectly for a potential tenant from day one and instill confidence that it will continue to be a good investment, regardless of how their in-person work requirements evolve. 

The big problem is that the two most common ways of managing build outs don’t work well for a rapidly changing commercial office space landscape. Today, there are two polarized paths available for designing and setting up a physical office during the leasing process. And while there are significant advantages to each model, they both come with significant downsides that limit their value to the broader market. We’ll explore them and then offer a new third way that is emerging in lockstep with these new demands. 

Take what you get

The first model for leasing office space is the pre-built out office. This is usually called a spec suite, a similar concept to a spec home. What a prospective tenant sees is what they get on move-in day. The landlord’s role in this scenario is to design and create a generic space in advance that will serve the majority of needs for the majority of tenants. 

On the bright side, stock designs offer an affordable option for tenants and landlords. This approach helps landlords quickly fill space with tenants who don’t expect perfection, while also helping control their fit out costs. 

The problem is that this model places a lot of pressure on tenants to find a space that best fits their needs. The perfect option isn’t a possibility, they just have to know when they’ve found the closest thing to it. The low cost of entry is paid for by the additional time finding a good space.  

What this means for landlords is a smaller prospective tenant pool. Space can also sit empty for a while as candidates evaluate all their options. At worst, we’ve seen examples of multi-million dollar build-outs that have to be completely re-done after the landlord couldn’t find a tenant who wanted their design. 

Have it your way

On the flip side, we have the custom office suite. In this scenario, the tenant (or landlord, but less often) hires architects to draft up plans to ensure a prospective tenant gets exactly what they want from the available space. This is the analogy to a fully-custom home. 

Tenants with the deep pockets and patience to invest in this process can buy into a space that perfectly suits their needs on move-in day. They can ensure their growth plans and unique approach to business is reflected in the space. 

The drawback is that custom build outs tend to be slow and pricey propositions. The average cost to build out a fully custom midsize office in the U.S. is $1.5-2 million, and it takes six to nine months to complete. Even if time and money aren’t a huge concern on the tenant’s side, it can be unnerving to make hefty long-term financial commitments based on architectural drawings rather than seeing a space in person. 

Plus, as companies stare down the uncertainty of a hybrid work future, there’s no guarantee that even the custom space will suit their needs just a short time later. To top it all off, landlords can’t cash in on rent during the often months-long process.

The virtual route

Moving forward, I expect to see the cons of each model addressed by the rise of the “virtual spec suite,” which might be easiest to understand in the context of new residential construction. The economic baseline for new homes is cookie-cutter houses all built exactly the same. Buyers can change out the finishings, but overall, you get what you get. On the other end of the spectrum are custom homes. Again, big money and time are required for these but hopefully it means the buyer loves what they move into. But the middle of this market structure has been filled for quite some time now by developers such as KB Homes that offer a host of templated design options for buyers to choose from. This achieves two critical things. First, it caps the otherwise endless design possibilities, which keeps costs and time-to-build down. Second, it gives buyers a sense that their home reflects their unique needs and isn’t just a mass-produced commodity. 

My hunch is that we’ll see a lot more of this in commercial office space moving forward. Landlords will work with design partners to create highly desirable templates that tenants can browse and choose from. From there, they can add those custom design finishes, such as lighting and flooring that truly make the space their own. 

The only barrier to this becoming a reality (and why it hasn’t already) is that tenants still can’t experience the space before they buy-in. We might be willing to finally buy clothes online, but you can’t just return an office that doesn’t fit. Landlords can improve the likelihood of leasing their templated space by making it easy for tenants to see exactly what an empty space will look like based on their unique needs. Think of it this way: if you could see yourself wearing the clothes you bought online before you bought them, the returns process wouldn’t be a concern in the first place. The same is true for the virtual spec suite in the office context. 

For example, at my company Swivel, we designed a solution that allows prospective tenants to virtually and immersively explore a space as it looks in its current form and also toggle between different buildouts, finish outs, and furnishings to show tenants how various configurations can meet their needs. I have learned to never assume that someone can see the finished product from the empty shell. Instead of hoping a company’s representative sees the potential of a blank space or hope that a stock build out fits their exact needs, landlords need to showcase different options that appeal to a variety of users. 

With immersive 3D modeling, office shoppers can virtually explore a highly detailed digital copy of a templated buildout and make sure it works with their vision and requirements. If something feels off, tweaks can be made to the digital environment before it’s something that needs to be addressed in real life. Every part of the process moves faster, cheaper, and with more confidence—a triple whammy that reduces risk and cost and improves speed and satisfaction in outcomes for each party. The flexibility requirement that comes with the hybrid work era doesn’t stop with employers being flexible on employee location. It’s an entire ecosystem shift that will influence how they shop for and design their offices. The world is going virtual. Shopping for office space is too.

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Hotels Seizing Hybrid Opportunities Dropped by Offices
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