Shell Space, 2nd Generation & Spec Suites: Real Estate Definitions & Benefits of Each
Shell Space, 2nd Generation & Spec Suites:
Real Estate Definitions & Benefits of Each
Shell Space
What is Shell Space?
Shell space refers to a suite or floor within a building that
has floor, walls, windows and a roof, but no interior build outs. It may also
have HVAC, plumbing and electrical.
Cold Shell vs. Warm Shell
Cold shell and warm shell are two more technical terms you may
hear your broker mention.
Warm shell space typically includes interior walls, electrical
outlets and wiring, sealed concrete floors, finished ceilings, lighting and
HVAC.
The Benefits of Shell Condition Build-Outs
Higher TI Allowance
From a cost perspective, a shell condition building has a large
amount of work to be completed before move in, and many of the improvements,
such as floors, ceilings, HVAC, etc., will stay with the building far longer
than you may occupy the space.
Because of this, it is common to see landlords offer
higher tenant improvement allowances (TI’s) for shell space in
comparison to second generation space. The overall
immediate construction costs, often can lower total expenditures over the long
term. (In other words,
more money for you to complete your project!)
Freedom to Design Your Own Space
Another more obvious, but noteworthy benefit of shell condition
space is the freedom to configure the space without pre-existing walls and
outdated finishes.
It is truly an empty canvas, and you are able to design as you
wish.
Let's use the property located at 1950 South 4th Street in Mission Center Retail Strip as an example of how shell space can be extremely beneficial. The property has a +/- 2,550 SF space in suite 4B for lease which is currently used for medical/retail purposes. This suite is clearly not in shell condition, however, the suite directly next door is.
If a potential tenant needed more than +/- 2,550 SF and wanted to expand into the extra +/- 5,000 SF they would have the greatest flexibility to do so. The tenant could either keep the build-outs from suite 4B and work with the shell space to match the current design, or they could demolish the build-outs (if given permission under the lease) to start from scratch with both spaces. This would save the tenant time and money throughout the process. View the Property Brochure Here
Shell condition space typically does not include:
- Demising walls
- Doors, frames and hardware
- Ceilings
- Finishes including paint and flooring
- Millwork
- Mechanical Systems
- Electrical Power and Lighting
- Plumbing for restrooms and breakroom areas
Shell condition space is typically found in new construction,
but can also be found in older buildings if the landlord has demoed an existing
suite.
2nd Generation Space
2nd generation space, or “2nd gen”, is a space that has been
built out with ceilings, walls, millwork, plumbing, HVAC and more. The space has been completely finished out by the previous
tenant, although typically you will want to renovate to customize to your
specific needs.
The Benefits of Second Generation Build-Outs:
Lower Cost, Less Time
In contrast to a complete build-out of a shell building,
2nd gen may require significantly less work, and therefore cost much less
to renovate. However, these spaces typically come with less tenant improvement
allowance from the landlord.
More Options in the Market
2nd Generation space is also much easier to find in the market,
especially within the CBD and surrounding downtown area, because there is far
more existing space than new space being delivered at any given time.
Because of the ample supply and quick turnaround, 2nd generation
build-outs are great for time sensitive moves.
Option to Take “As Is”
Because 2nd gen space has been occupied before, you can
technically move in right away, without renovating.
This can be another way to save both time and money. By taking
the space “as is” you can potentially receive a lower rental rate (because the
landlord is saving on TI), and you can often occupy the space much sooner than
you would if you had to renovate.
Lets use South 4th Street, El Centro as an example again. Suite 1 is a +/- 1,1260 SF space fit for a “as is” salon. The
suite contains all of the build-outs necessary for a successful salon, creating
a quick turnaround for a new tenant. This not only saves both the tenant and landlord time and money, but also comes with a client base and known community location of a previous salon. View the full Property Brochure here
Spec Space
This is a suite similar to a 2nd gen space in that it is fully
finished out and ready to occupy. However, with a spec suite the landlord has
completed the build-out based on an assumption of what a tenant will want, and
no one has actually occupied the space before you.
Because the landlord has just spent the money to fully
finish-out the space, you will be unlikely to receive much or any TI allowance
to make the space your own.
Spec space can be found in either new developments or existing
buildings. A developer may choose to spec out unleased space in a new project,
or an owner may choose to spend the money up front to renovate a suite in an
existing building in order to lease the space faster.
Benefits of Spec Suites
Move-In Ready
A spec suite will be in move-in ready condition, meaning you
could move in as soon as your lease is signed.
This can shorten your project timeline by a number of months, as
there will be no need to build-out the space.
No Need for Out-of-Pocket Renovations
Because the landlord typically designs the spec suite to meet
current tenant demands, there’s a good chance that you’ll like the suite layout
and design as is and you won’t need to pay for any renovations.
Some spec suites go so far as to come pre-furnished, which is
becoming increasingly popular for tech companies and startups that don’t want
to spend capital on office furniture.
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