Landlords with blocks of vacant space are increasingly dangling a new carrot in front of smaller tenants who are leery of the costs and complications of moving in a down market: they’re speculatively improving their vacancies and marketing the space to tenants as pre-built, plug-and-play opportunities.

The tactic doesn’t just succeed at luring tenants into empty spaces. It’s also a money-saver for landlords, who are able to control the budget for the work, rather than negotiating packages of tenant improvement allocations and free rent with prospective tenants.

“Tenants coming into the market now don’t give themselves a year to 14 months to get it done, and by the time they get a lease done, they’re under the gun to get the construction done,” said Matthew Daniels, a senior vice president in Colliers Meredith & Grew’s suburban brokerage. “In a lot of these companies, the decision maker on real estate has a lot on their plate, and real estate is something that pops up every five to seven years. Real estate isn’t their core competency, and they’re looking for a quick and easy solution.”

The types of users that are most drawn to pre-built office space are smaller ones, with space requirements of 12,000 square feet and under. In the past few quarters, those users have been shopping available spaces aggressively, but they’ve also put off pulling the trigger on real estate decisions until late in the game.

“When they walk into a space that’s a shell or it needs a complete retrofit, construction typically scares that tenant,” Daniels said. “They’re looking to find something new, clean and efficient – something that makes a lot more sense for them. Short-term renewals are very conservative play. When an easy decision presents itself, it becomes more appetizing to make that decision. People are looking for an easy solution, and if the solution is not easy, they’ll make the conservative play.”

‘An Easy Solution’

In the past several months, Daniels has leased more than 60,000 square feet of speculatively-built, ready-made suites in Andover’s Brickstone Square, a 1 million-square-foot park owned by Transwestern Investment Co. In each case, Transwestern didn’t have to make significant tenant improvements after the leases were signed.

Equity Office has also improved vacant space in its New England Executive Park in Burlington. And Boston Properties, the REIT with substantial commercial holdings in Boston, New York and Washington, D.C., has begun pre-building many of its smaller vacancies to make the space more attractive to potential tenants. During an earnings conference call last week, Boston Properties President Douglas Linde said his firm is currently in lease negotiations with a tenant for 20,000 square feet of plug-and-play office space at 1 Cambridge Center.

On that call, Boston Properties CFO Michael LaBelle said the company is looking to “actively pursue the use of pre-built spaces and use our construction management capabilities to manage installation costs by offering turnkey build out services.”

Ease Of Moving

The practice also saves Boston Properties tenant improvement dollars on the back end. Linde said the suites his company is building out generally have a shelf life of more than 10 years, so if a tenant walks away from a space after five years, the spaces “generally don’t need much in the way of retro-fitting when these tenants move out.”

He added, “And so then the second time around you don’t have to put any additional capital in.” Ease of moving is especially important to Boston Properties now because, during down markets, the firm typically sees a surge in leasing activity from tenants moving up in quality.

“The benefit to the landlord is increased lease-up,” Daniels explained. “If the tenant wants to be someplace in six weeks, and the space is already sitting there, you’re more likely to get the tenant than if you’re sitting on shell space.”

Landlords also capitalize on construction efficiencies by bidding several improvements as one project.

“There’s no efficiency to building out 5,000 square feet compared to 40,000 square feet, because you’re paying daily rates. There’s no efficiency in architectural fees. There is if you bid it as a single job.”

He added, “Historically, it’s been done for tougher vacancies. Now, all vacancy is tough vacancy.”