SAN DIEGO—It's a definite indicator of a healthy economy when office tenants are opting to move, not necessarily to expand but to get their companies into a fresh, more-modern environment, Bixby Land Co.'s president and CEO Bill Halford tells GlobeSt.com. As we recently reported, the firm recently completed development on AERO, a creative-office building in the Kearny Mesa submarket here. The 96,463-square-foot building, formerly home to the San Diego field office of the FBI, was redesigned by Bixby and Gensler & Associates into a contemporary-office environment. The firm is also nearing the start of construction on another San Diego-area project in Sorrento Mesa, the Oberlin, and has completed 27 office redevelopments from Northern California to San Diego to date. We spoke exclusively with Halford about companies' decisions to renovate in place or move and what is driving both.
GlobeSt.com: What are you noticing about users' decisions to either expand in place or move to a bigger location?
Halford: Most tenants, if the space still fits them when the lease expires, will just renew. The main reason to move is that the way the space is configured doesn't work for them anymore. If space was built out when law firms had secretaries, they may now need the same square footage but configured entirely differently. Sometimes, however, law firms or other users will move even if they're not taking more square footage—this can happen in the good stage of an economic cycle. Some people say they didn't like their old office building, and that's the group we're appealing to now. My explanation is that highly designed space that's amenitized and more current is what we're offering. Some tenants may move for that, and others may not. Some tenants may want a different environment.
GlobeSt.com: What about developers adding square footage to existing space rather than building ground up?
Halford: We did a project in Northern California where the square footage we bought was a little below what we were able to do on the site from an entitlement standpoint. We added a second floor to a building, and it was a little like found money—if you can buy something and the price per square foot is there and you know you can add square footage for various reasons. We're looking at a building that's parked 5/1,000. We think if the city allows us, we can take that parking and add additional rentable space since you don't need 5/1,000—anyone who thinks they do is not a good renter. Over time, nobody is going to need more than 4/1,000; the world is changing, and it requires less parking. If you can get it through the city, it makes sense to add square footage if you can and put in a mezzanine to create additional square footage.
GlobeSt.com: Does it make more sense financially for office tenants to stay in place or move?
Halford: It's almost always cheaper to stay in place unless you don't like the building, the landlord or the location—why else would you move and incur the cost? It costs $20 per square foot to move by the time you do all the wiring and realize the cubes are worth less.
GlobeSt.com: What else can you tell us about expanding in place or moving?
Halford: In 2009, if you asked me what percentage of tenants need more space, I'd say none. Most needed less space once their lease expired. Tenants gave back space, and they would chop 20,000 square feet of the lease and renew if the landlord was OK with it. Now, we're at the other end of the cycle, the economy is reasonably strong, and most people need what they have or want slightly more, not less. Most are forced to move because their existing space is too small, so it mirrors the economy. Whether people move or not has always bene a case of do I have enough space and does it work? Not, it is increasingly a case of, "I don't want the kind of building or environment I've been in; I want a new, fresh, interesting, different space." They're moving into the next generation of office space, where what people value is different. They don't care if the building is granite; they want outdoor space with landscaping and couches so they can enjoy the fresh air and sunny weather rather than working cooped up in an office.
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Carrie Rossenfeld
Carrie Rossenfeld is a reporter for the San Diego and Orange County markets on GlobeSt.com and a contributor to Real Estate Forum. She was a trade-magazine and newsletter editor in New York City before moving to Southern California to become a freelance writer and editor for magazines, books and websites. Rossenfeld has written extensively on topics including commercial real estate, running a medical practice, intellectual-property licensing and giftware. She has edited books about profiting from real estate and has ghostwritten a book about starting a home-based business.
