News

Real estate biz sees return of 'built-to-suit'

Date November 29, 2006
With vacancy shrinking in Ottawa's west end, built-to-suit developments are making a comeback, say local real estate experts.
Built-to-suit, or custom-built office buildings that incorporate the needs of tenants in the const

With vacancy shrinking in Ottawa's west end, built-to-suit developments are making a comeback, say local real estate experts.

Built-to-suit, or custom-built office buildings that incorporate the needs of tenants in the construction phase, are growing in popularity, they say.

Additionally, at least 17 buildings in Ottawa are customizing by "Going Green," having their buildings meet rigourous environmental standards, scoring public relations points and saving real dollars in energy costs.

Although the number of requests for new, built-to-suit buildings in Ottawa is still small, they are at their highest since the dotcom bubble of the late 1990s, GVA Devencore associate vice-president Denis Shank said.

The broker said the term is coming back in industry circles.

"Built-to-suits, especially in Kanata, are back on people's lips," he said. "A lot of developers are actively marketing that."

Prior to the dotcom bust, vacancy was so low that companies resorted to building office space from scratch. "Back then, the challenge was to find space. Period," said Mr. Shank.

Before some of them were even completed however, the market collapsed in 2001. With vacancy rates over 30 per cent, it didn't make sense then for companies to build-to-suit.

"Landlords, you will remember, were offering free rent," he said. Some charged just enough to cover maintenance costs just to keep a client in the space.

Today, with vacancy down to about eight per cent in Kanata - lower downtown - the market is changing.

The challenge now, said Mr. Shank, is for companies to decide whether an already-built or a design-built structure is for them.

More and more are opting for the latter, he said.

"It becomes more sensible to build them for clients because the numbers, the actual asking rates, have been going north for the last year," he said. "Three years ago, it didn't make sense to go that way, because you could pick up property for next to nothing."

Derek Howe, a business development manager with Broccolini Construction Inc., said his company is taking advantage of the trend.

"It's something we feel that there will be a very large market for," he said. "We're looking for staff every day to help us grow . . . From Broccolini's point of view, it's a very competitive option for companies to have a building built for them, rather than finding an existing building out there."

The advantages, he said, are many. Clients can customize structures to taste.

"We work with the client and build them a customized approach that meets their operation, their culture, their philosophy and quite often, their location in the city," he said, be it downtown or the 'burbs. "We're able to deliver a customized workspace, as opposed to settling for a series of compromises in an existing building."

Broccolini, which expanded to Ottawa three years ago after 50 years in Montreal, is currently building Telus' new nine-storey headquarters at Bank and Slater streets. It's also relocating EMS SATCOM from its current digs on Woodward Drive to a built-to-suit building in Kanata.

"Currently, (EMS) have their manufacturing operations over several floors of a multi-storey building, leading to very diminished efficiencies," said Mr. Howe. At EMS's new building, all the manufacturing operations will be on one floor, as the firm requested.

The largest disadvantage of building a structure from scratch is cost. With the price of steel and other building materials still increasing, building new is naturally expensive.

It doesn't make sense when vacant commercial space is ready and screaming for occupancy. But when the available space requires a lot of work to make it ready for occupancy, built-to-suit becomes a viable option.

Potential savings in energy efficiency, said Mr. Shank said, can be the tipping point for some companies in choosing build-to-suit. While it might cost more initially, the expense can be recouped in energy savings.

"It's something that's becoming more and more attractive," he said. "If your fit-ups are extensive, there's savings to be made."

Fit-ups include internal walls, carpeting, ductwork and even ceiling tiles - any "rejigging" to suit a company's needs, he said.

In addition, heating, cooling and other climate-control technologies increase in efficiency every year; building new will certainly take advantage of the latest technology out there, saving firms money down the road as energy prices rise.

"What we're doing now as tenant reps is analyzing the efficiency between the two," he said. "Sometimes, you might be paying a premium for a built-to-suit, but the efficiency - in materials, the HVAC systems - in new buildings is (higher)."

Dean Karakasis, executive director at the Building Owners and Managers Association (BOMA), agreed that more Ottawa firms are looking at built-to-suit as an option.

Many of them - 17 at the moment - have approached BOMA to "Go Green," a certification the association hands out if they meet a list of criteria. It's a list of best practices for environmental and efficient building management.

"It speaks to energy, water, construction materials, construction waste, indoor air quality," he said. "Then, there's the 'Go Green +,' (which) goes beyond that. We're not just going to choose carpets that don't have a lot of odour, or use paints that are disposable. Go Green + says you're going to achieve certain standards. For example, diversion rates for construction waste have to reach a certain percentage."

Mr. Karakasis said if companies apply for either of the green programs from BOMA, it will pay off down the road.

"(Operational) costs will go down," he said. "That affects rent, and gives you the ability to stay in the market and be ahead of the curve in terms of costs per foot."

Mr. Shank said it's ultimately up to individual companies to decide which scenario best suits their needs. "Built-to-suits are ultimately back in our vocabulary," he said. "But it's on a case-by-case basis."