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Office and Retail Buildings

Office and Retail buildings range in size from small, owner-occupied properties to multi-building office parks and Regional Malls. Office and Retail space may also be an important portion of mixed use developments, both in new construction or historic rehabilitation properties. Many times Office and Retail space share the same development.

Categories of Office Buildings

• Garden: One to three stories, usually suburban, generally smaller buildings than other categories. They may be single tenant/owner occupied (law firms, insurance agency, real estate office) or multi-tenant. Two or less elevators.
• Low or Mid-Rise: Usually multi-tenant. Up to six stories, depending on area.
• High-Rise: Usually in urban markets, most often in the central business district (CBD). Multiple elevators, depending upon size.

Terminology will differ among markets. It would not be uncommon to hear of an office building being referred to as just, medical/dental versus Garden or Mid-Rise, etc. The Daytona Market is maturing but to date there is less than ten Mid-Rise office building and no High Rise properties.

Categories of Retail Properties

• Shopping Centers A group of stores catering to a trade area, which offer a variety of goods and/or services and on-site parking (the tenant mix):
• A Super Regional Center has 3 or more major department stores, is often enclosed (mall), is 750,000 to 1 million square feet, and draws from a large trade area of 12 miles or more. The Volusia Mall is considered a Super Regional Center.
• A Regional Center has one or two department stores, a variety of smaller stores, and is larger than 300,000 square feet. It will draw from an 8 mile radius or more.
• A Community Center usually has a supermarket, junior department store, and a variety store, is larger than 100,000 square feet, and draws from a 3-5 mile radius.
• A Neighborhood Center is built around a supermarket and/or drugstore, provides convenience goods and services to a neighborhood, is between 30,000-100,000 square feet, and draws from a 1-3 mile radius.
• A Convenience Center is a small cluster of stores along a street, 5,000-40,000 square feet; trade area is immediate neighborhood and it may havea convenience market, laundromat, dry cleaner, etc.
• A Speciality Center often has a theme, usually has no anchor, and generally is local in impact. Examples might be home improvement centers, gift shops, or auto service and sales.
• A Free Standing Store is one commercial building meant to be occupied by a single user. It is typically found near major shopping centers on major routes, and fills a specific need in the area.

Property Classes

• Class A Property: Newer buildings, generally less than five years old, in excellent condition. High-quality fixtures, lobby area, etc.
• Class B Property: Seasoned buildings, five or more years old, that are in average or poor condition. Usually mid-rise in size.
• Class C Property: Older buildings of any size that are in average or poor condition. Usually relatively Inefficient in loss factor and operating expenses.

The Office User's Needs (Owner/Occupant or Lessee)

A typical user will be interested in the following items. Of course, priorities will differ.

• Location and Accessibility: For clients, customers, vendors, etc. Also for employees (including proximity to executive's residence).
• Costs of Occupancy: Not simply the rent, but all costs including expenses paid by tenant.
• Parking: Customer and employees.
• Appearance: Interior and exterior - image.
• Cleaning Service:
• Elevator Efficiency:
• Amenities: Includes access to food service for employees, recreation Facilities, etc.
• Tenant Improvements: How well-finished is the space (carpet, wall coverings, dividers, etc.), or, if new construction, will the tenant Improvement allowance ("T.I")is sufficient to pay for finishing out to the tenant's wishes?
• Building Efficiency: (In two categories):
a. Is the space layout (private offices vs.open office areas) efficient with little wasted space, oversized offices, etc.?
b. Tenants in multi-tenant space pay a pro-rata share of common area space (halls, etc.) and some poorly designed or older buildings have a high percentage of such space (wide halls, atriums, etc.). See discussion of load rentable/usable.

An Office Buyer (owner-occupant or investor)

The buyer will be interested in all of the above features (because they will affect the attractiveness of the property to tenants) and also the following:

• Income
• Expenses
• Mortgages
• Condition of roof (age)
• Condition of parking lot (ramp) and age
• Tenants (length, type, credit)
• Lease terms and conditions

Office Building Construction Terms (Basic)

The Shell or the skeleton: framing, girders, foundation over which the interior and exterior walls are applied.

The Skin: The materials that cover the shell.

The Core: Each office floor contains an area that is not available to be used by the tenants on that floor, consisting of: elevator shafts, stairwells, rest rooms, and space or rooms for mechanical, telephone, electrical, or HVAC equipment. So-called because it is frequently - but not always -located in or near the center of the floor.

Modules: Each floor of office space is divided into imaginary squares ranging from 3 to 5 feet - often 3 feet 8 inches or 4 feet. Usually these modules are consistent on each floor of a building. They are used to plan the layout of offices on the floor. Five foot modules are attractive to tenants who want a large percentage of their office space divided into private offices, since a 10 x 10 foot office size is often considered minimum. Any five-foot incremental variation is also easy, i.e. 10x15, 10x20, etc.

Mullions:The exterior wall dividers of glass areas that correspond to the modules. Mullions are the natural points to attach interior dividing walls (as in walls between private offices). It is unattractive and costly to build an interior wall in the middle of an expanse of exterior windows.

HVAC: The Building's heating, ventilating, and air conditioning equipment. Older buildings usually have a central system. Modern buildings have multiple units within the building and often have the ability to zone the HVAC on floors or areas within a floor.

Floor-Load Capacity: Refers to how heavy a load (weight) the floor can support. Can be important to tenants such as printers on a first floor or lawyers with a large law library on upper floors.

Elevators: In multi-floor buildings a sufficient number of elevators to service the needs of tenants and customers/vendors is important to avoid the frequent problems of lengthy waiting time.

Ceiling Height: A nine-foot ceiling greatly enhances the spacious feeling as compared to an eight-foot ceiling.

Plumbing: Sufficiency per floor is important. Adding specialized plumbing for a Tenant is very expensive.

Life-Safety Features: This term includes the following items which can be of importance to occupants:

• Automatic sprinkler systems
• Smoke detectors
• Manual fire alarms
• Automatic door release systems
• Smoke evacuation systems
• Elevator recall systems
<lil>Emergency stair systems
• Remote stairwell unlocking
• Firefighter's phone system
• Emergency power
• Central Control console

Office Space Measurement

Standards for measuring space vary from market to market. Obviously, the tenant wants not only the lowest rent (and occupancy cost) per square foot, but also wants to pay for the minimum amount of space in addition to the actual space he/she can use for his/her business. The most common measuring system in use is that defined by The Building Owners and Managers Association International (BOMA).

Office Space Measuring Standards: Physical Aspects

There are two types of space measurement of office buildings: (1) rentable area and (2) usable area. According to BOMA, the definitions of these terms are as follows:

Rentable Area

This method measures the tenant's pro rata portion of the entire office floor, excluding elements of the building that penetrate through the floor to areas below. The Rentable Area of a floor is fixed for the life of the building and is not affected by changes in corridor sizes or configuration. This method is therefore recommended for measuring the total income producing area of a building and for use in computing the tenant's pro rata share of a building for purposes of rent escalation.

Usable Area

This method measures the area of a floor or an office suite which can actually be occupied, and is of prime interest to a tenant in evaluating the space offered by a landlord and in allocating the space required to house personnel and furniture.

The amount of Usable Area on a multi-tenant floor can vary over the life of a building. corridors expand and contract as floors are remodeled. Usable Area on a floor can be converted to Rentable Area by the use of a conversion factor.

Note that a building floor's rentable space does not change: it is the entire floor less major vertical penetrations of the floor. Usable space, i.e. rentable space less common area, can change as offices and corridors are moved or remodeled.

When space costs are quoted, they are usually quoted on a rentable basis. As such, it is very important to understand rentable vs. usable space and how the two measurements are derived. Below are BOMA's official standards.

Rentable Area

The Rentable Area of a floor shall be computed by measuring to the inside finished surface of the dominant portion of the permanent outer building walls, excluding any major vertical penetration of the floor. No deductions shall be made for columns and projections necessary to the building.

The Rentable Area of an office on the floor shall be computed by multiplying the Usable Area of that office by the quotient of the division of the Rentable Area of the floor by the Usable Area of the floor resulting in the R/U Ratio described herein.

Usable Area

The Usable Area of an office shall be computed by measuring to the finished surface of the office side of corridor and other permanent walls, to the center of partitions that separate the office from adjoining Usable Areas, and to the inside finished surface of the dominant portion of the permanent outer building walls. No deductions shall be made for columns and projections necessary to the building.

The Usable Area of a floor shall be equal to the sum of all Usable Areas on that floor where: *Finished Surface shall mean a wall, ceiling or floor surface, including glass, as prepared for tenant use, excluding the thickness of any special surface materials such as paneling, furring strips and carpet. Major Vertical Penetrations shall mean stairs, elevator shafts, flues, pipe shafts, vertical ducts, and the like, and their enclosing walls, which serve more than one floor of the building, but shall include stairs, dumbwaiters, lifts, and the like, exclusively serving a tenant occupying offices or more than one floor.

In every building there will be a ratio between rentable space and usable space, since rentable space will almost always exceed usable space. This ratio, or percentage of rentable space over and above usable space is called the R/U ratio.

This factor is a key index for the floor's efficiency - greater the R/U ratio, the less efficient the space. A related efficiency index is known as the load factor, or loss factor. This is the percentage of space on the floor that is not usable, expressed as a percent of usable space.

These various relationships can be expressed in formulas as shown below:

• Rentable/Usable Ratio (R/U Ratio)= Rentable Area divided by Usable Area.
• Rentable Area = Usable Area x R/U Ratio
• R/U Ratio -1 = Load Factor

Note that when using the R/U ratio and load factor formulas, a tenant's rentable area can be quickly derived by either multiplying the usable area needed by the R/U ratio, or by adding needed area plus the load factor.

The rentable area of an office on a multi-tenant floor is measured from the inside finish of permanent outer building walls to the office side of permanent partitions and to the center of partitions that separate the premises from adjoining rentable areas. No deductions are made for columns and projections necessary to the building.