Mastering the Office Build-Out Process
This article was updated on 6/06/2024
If asked to rank the aspects of the office leasing process that cause consternation, managing an office build-out would probably rise towards the top of most tenants' lists. Determining your space requirements is relatively straightforward; most business owners are well-versed in creating a budget; and the process of selecting an office location is both potentially exciting and likely familiar to anyone who has ever rented or purchased an abode. But construction? That's a whole different genus of endeavor.
These days, most tenants looking for small blocks of space will likely lease premises that are turnkey, i.e., already fully constructed. And while that can be an excellent option for many office users, for those with the patience, time and financial wherewithal, building out shell space can represent an excellent opportunity to design an office that optimally aligns with your organization's workflow, culture and branding.
Of course, fortune (and construction) favors the well-prepared, which is why LoopNet spoke with a highly experienced project manager to glean guidance and insight into this occasionally confounding process. Keith Murray is a senior director with construction and property consultancy Gardiner & Theobold and during his 23-year career has managed build-outs for such prominent and wide-ranging companies as Facebook, Debevoise & Plimpton LLP and AllianceBernstein.
So, what are the stages of an office build-out? Murray said tenants looking to develop, design and renovate shell office space will encounter the following steps:
- Select the team.
- Develop a schedule.
- Prepare a budget.
- Design the space.
- File the plans.
- Bid out furniture, fixtures and equipment (FF&E).
- Select a contractor.
- Prepare shop drawings and layouts.
- Build the space.
- Conduct inspections and prepare punch lists.
Before we go any further, it's worth noting that Murray's advice is directed at a hypothetical 10,000-square-foot office tenant conducting a relatively standard build-out of a cold shell (completely unfinished) space over a total time period that should encompass approximately seven to eight months, from design through the completion of punch list tasks. That said, as Murray observed in his distinctive Scottish accent, "There are no two projects the same."
Select the Team
Murray noted that possibly the most crucial factor in ensuring a successful office build-out is putting together the right team of consultants and advisors. This could very well start with a project manager, like Murray himself. Project managers act as a conduit between the tenant or end user and the numerous other professionals involved in the build-out process.
In addition to a project manager, the other professionals that regularly feature in the build-out process include an architect, and - depending on the market and complexity of the tenant's requirements - an MEPFP (mechanical, electrical, plumbing and fire protection) engineer and technology consultant (for both IT and AV requirements). Collectively, these professionals are often referred to as the design consultants. A general contractor, and numerous subcontractors, will obviously come into play later in the process.
Many tenants, particularly for smaller build-outs, will find that their choice of architect and MEPFP engineer is dictated to them by the landlord. While Murray said that it is possible for a tenant to negotiate the ability to select their own design consultants, 99.9% of the clients that he's worked with are pleased with the services provided by the landlord's preferred professionals.
The landlord will "typically not be involved in the procurement of furniture and the procurement of IT and audiovisual components," Murray said. However, he added that, in most instances, the tenant will contract the landlord's architect for an additional service to assist with the design and selection of furniture. If necessary, the tenant will be responsible for selecting their own technology consultant.
Develop a Schedule
As the project manager, Murray is generally brought into the process once the tenant has narrowed their prospective spaces down to a shortlist of one to three preferred contenders and issued letters of intent (LOI) to the owners of those properties. His role at this stage is to review the technical aspects of the lease agreement and ensure an effective timeline for delivery.
One of Murray's first tasks once the lease has been signed is to work with the client to develop a schedule "to map out the project from the [LOI stage] to the completion of construction." He noted that one of the most critical aspects of developing the schedule is helping the tenant understand their crucial decision-making role in the process and the timing thereof. "We set those decision [milestones] and touchpoints at the very beginning … because at the end of the day you have the architect, you have the project manager, you have all the design consultants that are involved, but, ultimately, we need decisions from the end user," Murray said.
In terms of developing the actual schedule, Murray advocated for starting at the end of the process and working backward. "The first thing we will need to know is what are the restoration requirements in your existing space, so what do you have to do to give back [the space to the landlord when your lease expires]." Murray continued, "And [from there] we start putting in the various elements of the design process, the decision-making process, the budgeting process, the award of the contractor process and the actual construction itself."
Prepare a Budget
One of Murray's initial areas of focus is understanding the client's requirements and design preferences. Based on that information, Murray will review benchmarking data - i.e., data pertaining to comparable build-outs - for total project costs. This includes everything from consultant fees through construction, FF&E, technology and relocation expenses. Once the architect has been brought on board, Murray will work with them and the client to develop a space program, assuming one hasn't been prepared already. The space program will clarify the basic requirements of the space - number of offices/workspaces, conference rooms and other necessary facilities - and will serve as the foundation for more detailed test fits, layout drawings, etc.
"As the drawing develops from the [space] programming to the test fit, we'll start to set the budget with the tenant so they understand their initial out-of-pocket costs," Murray said. He added that, "There's a budget and that's what we set in conjunction with the tenant, and then we're continually updating the estimates based on the decisions that the client's making from a design perspective and keeping them apprised of the impact of those choices."
Part of Murray's job is helping the tenant understand how enhancements to the space that exceed the landlord's base building specifications (i.e., the landlord's standard build-out package and finishes) will impact their financial exposure on the project. He noted that most tenants intrinsically understand that premium finishes - stone in the lobby instead of tile, for instance - will not be included in the base building specifications and will require additional capital.
However, he said that where many tenants go astray is not realizing that most landlords' base building specs are often insufficient for a contemporary office user from a technological perspective. For instance, they may only provide one duplex electrical outlet per 150 feet, which won't offer enough coverage for a user with multiple monitors, charging stations, etc. In such instances, Murray can help the tenant negotiate additional electrical specs in the lease documentation.
Design the Space
With the core team of consultants on board and the budget being prepared, the next phase is to move the architect's drawings into the schematic design phase. This is, essentially, a more detailed version of the space program, which will delineate all of the basic elements of the office. This milestone will generally be reached about four weeks into the project.
Once the schematic designs are completed, Murray advised that the next step in the process is designing the look and feel of the space. This phase is particularly intensive for the tenant, as they need to make myriad decisions regarding how they want the space to look aesthetically and function practically. This stage also comprises contributions from the architect and, if applicable, MEPFP engineer and technology consultant. The architect will be focused on the aesthetics: what does the carpet look like? Are any luxury finishes being utilized?
Concurrently, the MEPFP engineer is working alongside the architect and considering more technical elements, such as what kind of diffuser will the space utilize; meanwhile the technology consultant is conferring directly with the client to develop the technological specifications, such as how many connection points each workstation requires, or what audiovisual components should be utilized in the conference room. During this four to six week period, Murray is making sure the tenant is responding to the consultants with design decisions in a timely fashion, as well as estimating how those choices are impacting the proposed budget.
File the Plans
According to Murray, once the design process has been completed and the tenant has made all of the requisite decisions, the design consultants coordinate on developing the final package of drawings to be submitted to the local department of buildings for permitting and approval.
There are two ways to approach the filing process. The first is professional self-certification, which takes from one to two weeks. The alternative is standard filing, which takes six to eight weeks to allow for a more extensive review process by the department of buildings. The downside to self-certification is that because it requires the design team to take on greater potential liability, the tenant incurs additional expenses from both the architect and MEPFP engineer.
Oftentimes, an expeditor is utilized to file the plans with the department of buildings. The expeditor acts as a conduit between the department of buildings and the tenant and, as their name suggests, helps to accelerate and simplify the approval process.
Bid Out FF&E
Murray advised that it is prudent to begin the bidding process for FF&E even prior to filing plans and selecting a contractor, as some items could require long lead times.
Murray generally advises against selecting a specific furniture item or manufacturer, as that can minimize a tenant's ability to achieve the best price. Instead, Murray said, "we have the architect create performance specifications, which will briefly [define] what the furniture's going to look like, what it needs to do, … and then we bid that out to the manufacturers." Taking this approach, according to Murray, enables a tenant to "pit the furniture manufacturers against each other," which is advantageous, "because that's where you're going to get the biggest bang on your dollar for savings."
Murray and his team will then level the bids received from the various manufacturers. Bid leveling is a process whereby you evaluate the bids to make sure that each one features the same scope of work/product and that any exclusions are consistent, "and the difference is just in the pricing." Following the leveling process, a manufacturer/dealer will be selected, and the "shop drawing" process for the furniture will commence. Shop drawing is when the furniture manufacturer submits drawings to the architect to confirm that they have correctly understood the designs prior to commencing the manufacturing process.
According to Murray, most basic furniture items, such as workstations, can be built in approximately six to eight weeks. However, he noted that it's important for the tenant to consider any specialty items they may want to acquire for the space earlier in the process, as pieces such as custom conference room tables or certain light fixtures can take up to 5 months and may necessitate a pre-purchase package that is separate from the primary furniture contract.
Select a Contractor
While the filing process is underway, Murray turns his attention to perhaps the most integral element of the build-out: construction of the space. Murray suggests simplifying this potentially daunting task to the extent possible. "Assuming there's nothing quirky in the complexity of [the build-out], we would typically recommend going with a GC lump sum."
This is an approach whereby the tenant hires a general contractor who then establishes subcontracts for each of the specialized trades required. Murray said the advantage of this methodology is that you "just have that one touchpoint."
In many instances, a landlord will have preferred GCs. While Murray acknowledged that one of the landlord's GCs can often prove to be the best choice for the project, he said they still need to be thoroughly vetted through a request for proposal (RFP) process.
"It's not just handed to them," Murray said. "We want to vet who [the landlord's] GCs are, so we have a level of comfort with them."
When preparing the RFP tenants will usually provide a list of "add alternates." Add alternates are changes to the landlord's standard specifications, mostly more expensive finishes or materials that a tenant is considering implementing for the project, depending on the cost. Once bids are received from the various GCs, Murray said that the leveling process is once again carried out. He said that it's important to evaluate not only which GC offers the most competitive base price, but to also consider their pricing with regard to the add alternate items.
Prepare Shop Drawings and Layouts
Once the GC has been selected, they will develop shop drawings to be approved by the architect and MEPFP engineer, "reaffirming with the design consultants what's on their drawings." This process is for items that need to be manufactured or ordered for the space, such as ductwork.
Meanwhile, the GC will also go into the actual space to confirm the layout. With a can of spray paint in hand, the GC will delineate the placement of walls, corridors, cabling for electrical and data access and all of the other fundamental features. Like the shop drawings, layout in the space will be reviewed and verified by all of the relevant design consultants.
The shop drawing/layout process generally takes between six to eight weeks, but construction should be able to commence concurrently. As shop drawings or layouts are approved, construction can begin on those parts of the space, while shop drawings and layouts for other aspects of the build-out are still in process.
"The way they typically will build out space is almost from the top down," Murray said. "So, the ductwork would be the first thing."
Build the Space
Once the construction is underway, Murray's role becomes focused on coordination and vendor management. "A lot of our role in the construction process is really keeping on top of the design team to make sure they're returning the submittals [from the GC] within the required amount of time to meet the schedule."
During this period, Murray is also "working with any of the direct vendors to make sure that they know when they need to be on site, and providing frequent updates on schedule and budget to the tenant."
Murray said that he will generally have weekly meetings with the tenant to keep them apprised of the construction process without providing unnecessary details. "The only time we would really go back to them is if it's going to affect the budget … if there would be any potential delay to schedule or if it would have a material effect on the design."
Murray summarizes this phase of the process by saying, "It's really about pushing everyone along to make sure that they're meeting the dates they've committed to." In total, Murray said that the construction process for an approximately 10,000-square-foot space should take around three months.
Conduct Inspections and Prepare Punch Lists
Once the construction process is complete, final inspections are conducted to acquire certificates of occupancy and any other necessary permits. The various consultants involved in the process will also tour the space and develop a "punch list" of items that need to be revised by the GC or direct vendors.
Murray also assists his clients in gathering all of the documentation from the GC and any relevant consultants that needs to be submitted to the landlord in order for the tenant to be reimbursed, per any applicable tenant improvement allowance provided in the lease. This includes obtaining lien waivers from the GC and any subcontractors, which stipulate that they have received payment and will not take out a lien against the property.
Murray will also compile a closeout package for the tenant that includes all of the operations and maintenance manuals, as well as any cleaning instructions and contacts for servicing HVAC, plumbing, fire alarm, electrical systems, etc.
In total, Murray said that the closeout process will usually encompass six to eight weeks, depending on the nature of the "punch list" items.
"To be quite honest, this is the most difficult part of our job, because once the space is finished and constructed, everyone wants to walk away and [move] on to the next job. We've got to make sure that we keep [subcontractors and consultants] focused through the closeout period."
In some respects, Murray acknowledges that the construction process can seem deceptively simple. "The construction process is very linear. There's a reason it hasn't really changed for the last, however many thousands of years," he said. "You need someone to create the drawings, you need to get someone to build it."
However, while he admits to a certain bias, he said that it can be a very difficult process for tenants to manage on their own. "There's a lot of touchpoints along the way … and unless you know how to navigate that type of situation, you've got to get your arms around a lot of people and a process that needs to be pushed along."
Moreover, that "pushing" needs to be carefully coordinated. "Everyone needs to push in the right direction for a project to be a success. Your architect, your engineer, contractor, any other consultants you have, your project manager; you all need to be pushing in the same direction."
