Shannon Henry's The Download - Live|
Discussion with Linda A. Mallison
VP, Tech Advisory Group of The Carey Winston Co.
Thursday, December 16, 1999 at 1 p.m.
Welcome to The Download Live. I'm your host, Shannon Henry. Today's guest is Linda A. Mallison, Vice President, Technology Advisory Group of the Carey Winston Company. For many local entrepreneurs the tech boom has also meant a real estate bust. Offices are bulging at the seams as companies scramble to find more accommodating workspaces. In addition, the demands on and of employees puts pressure on companies to find attractive and accessible office locations. Mallison specializes in assisting technology firms in their office space and land acquisition, and the long-range planning of their use of commercial real estate. Join us as we discuss the real estate options for growing firms and the amenities necessary to lure and retain employees.
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Can you give us any heads up about big-name tech companies moving into the Washington area?
Linda A. Mallison: There are several tenants "circling" the area, considering space options... including Nextel, Perot Systems,Lockheed, Telegent, Ericsson, e-Trade...and of course there are rumors about Microsoft...
Hi Linda! Could you start off by telling us what tech companies are looking for in real estate space these days? Leases, wiring, etc. How are their demands different from other industries?
Linda A. Mallison: Hi Shannon! Tech companies are looking for a lot of the same things that other companies consider when they choose their location -- visibility, access, traffic patterns, where people live. They put a heavy emphasis on employee amenities -- due to the shortage of tech employees, and the competition for employees between tech firms-- they look at proximity of places to eat, day care, general errands that people need to run during the course of the day.
Their wiring/connectivity/telecom requirements are generally stronger than those of other companies... and the terms of the lease document itself are extremely important - the right to expand, to cancel, to sublease...
Where are the hottest locations? The most overcrowded?
Linda A. Mallison: Northern Virginia- particularly Reston, Herndon - the whole "Dulles Corridor" continues to be the area of choice for many tech companies. Where Arlington used to be hot, due to the requirement of Government/Defense contractors to be in proximity to DARPA, lots of tech companies like company of the critical mass of companies clustered around the Dulles Corridor's ISP's and MAE East. Tysons is considered to be Overcrowded from a Traffic perspective!
I hear from so many tech executives that looking for space is just a draining experience. Is there any way to make it easier or smarter?
Linda A. Mallison: It IS a draining experience, more so now than ever, due to the shortage of space. The best advice I can offer is to Plan Ahead. Start the process early. A year prior to your lease execution is not too early. Form your team for your space search and compile your priorities. Make a time line, outlining everything from the research, initial survey, tour of spaces, proposal evaluation, lease review, architectural planning, and construction. Consider Location, the Type of space (flex, office or warehouse), your employees' commute patterns. Your broker- an important part of the team -will provide you with market overview information to help with the planning process, and will work with you through all of the steps.
Are you seeing more companies sharing space, whether in an incubator or less formal arrangement?
Linda A. Mallison: Incubators, and less formal space sharing, are sometimes the only alternatives for start-up companies. When space becomes available in existing office buildings, it is usually leased (very quickly!) by an existing tenant in the building for their current or future use. As new office buildings are constructed, they are often pre-leased to large tenants, leaving little or no remaining space available. Mario Morino's incubator in Reston houses several "to watch" companies, and the Greater Reston Chamber of Commerce has just opened it's incubator office space.
Fairfax County, Virginia:
What are some "rules to live-by" for a small tech company that is planning to move out of one of the founder's garages and looking for a small bloc of space? Can't they just drive around and call the numbers on "those signs" by themselves?
Linda A. Mallison: Yes, certainly the folks who place the signs hope that people will call while driving by. This can give you an idea of space available in that particular building, but not what is available in the market in general. Also, the rental rate quoted by the building representative may not be the "market rate" that your broker, or real estate representative could help you obtain, due to his/her knowledge of the market. Sometimes the best space available never makes it officially to the market... so working with a broker with his/her ear to the ground can help.
We're seeing a lot of concierges in tech companies. Are there any other trends like that you're starting to notice?
Linda A. Mallison: One trend is that companies are making their office "Fun" places to work - complete with game rooms, basket ball courts, areas to get together informally, refrigerators stocked with Odwalla juice, bright colored walls, etc.
Another trend, is that an "office" does not need to be in an office building. It could be in a warehouse, or what was traditionally retail space.
Can tenant-brokers track "shadow space"?
Linda A. Mallison: Yes. Because they are in the market representing tenants, they are aware of companies that are planning to relocate (freeing up that space at their current location), and they hear of companies that are/may be downsizing. One of the best examples of a large block of shadow space that never officially made it to the market, was when Landmark Systems made the decision to relocate to Reston, and Microstrategy immediately lease the space they were planning to vacate.
Just how did Northern Va., particularly Tyson's, become such a tech hot spot, compared with say, Rockville?
Linda A. Mallison: The tech companies of the eighties - BDM, Advanced Technology, Honeywell, Sperry, etc. were basically government contractors who gravitated to Tysons due to lower rental rates (relative to D.C.), and the ease of access that the beltway offered (remember the term "Beltway Bandits"?). These companies evolved over time to their tech orientation, and this combined with THE INTERNET added to the critical mass of the Tysons area. Service companies started to follow their clients to Northern Virginia, and we started to see Northern Virginia offices of big name Law firms, accounting firms,etc. The migration continued to Reston/Herndon/Dulles with the location of so many ISPs in the area. Other drivers certainly include affordable housing, related quality of life elements, Dulles Airport , CIT, and the wealth of Northern Virginia colleges and universities.
What are some of the most creative uses of space you've seen?
Linda A. Mallison: It's challenging for companies to figure out the best design for optimum productivity and happiness of their employees. Some of the most creative uses of space I have seen include Sideout Technology in Fair Oaks. Basically all open plan- not even a hard walled office for the President. Spot Color just opened it's office in a flex/warehouse project in Chantilly - and their creative design, use of color (and small basketball court in the midst of the office) makes you smile as you walk in the door.
Fairfax County, Virginia:
What are some of the typical questions tech companies ask you in narrowing down their site options?
Linda A. Mallison: If you have decided on the area that you want, deciding between different sites will totally depend on what you want and need from your office space. If by Site you are referring to existing buildings, some of the questions you would ask your broker include: Who are the existing tenants and what are their plans for the future (how long are their lease terms, do they have options to expand into additional space,etc.)?
Who is the Landlord/building owner, and what is their reputation? How have they traditionally worked with growing tech companies/are they flexible?
How is the building wired/ who are the fiber providers/ can this building meet our power requirements?
What are traffic conditions / commute patterns for your employees?
Can you have signage?
Is the lease rate, and are the lease terms, competitive?
Do you think cubicles are a permanent fixture in offices? What brought them on, anyway?
Linda A. Mallison: Cubicles/systems furniture serve the critical function of providing Flexibility. They can be dismantled and rearranged with each new project/ contract. Companies who use them say that they increase communication and sense of company community, versus traditional hard walled offices.
Necessity brought them on - people figured out that working in box offices is not always best.
Are some tech companies making money by leasing land/building on space they own? I'd heard that MCI-Worldcom took more space than it expects to need with the intention of its rental value rising.
Linda A. Mallison: It's rare that a company can "make" money by building. There are so many variables. If they obtained the ground for a good price (long ago) then it may make sense to build.
Generally, companies go this route to protect themselves in the future. They know that they will be a big consumer of space, and that they will need to take care of this space requirement themselves.
In the leasing market, a major tool that tech companies are using to insure that there is space for their future growth, is to lease more space than they need today and sublease it for a short time until they grow into it. There are critical pitfalls to look for when using this tool, such as the subleasing language in the lease document. Specifically, look to see if the landlord has the "Right to Recapture" the space once you announce your intention to sublease.
What's the general rule of thumb for how long a startup company-planning for growth-should expect to be in its current space?
Linda A. Mallison:
Tough question, again so many variables to consider. Planning is the key. What are the company's projections for numbers of employees and how much space is allocated per employee (systems furniture and open plan requires less space and traditional office layout)? And does the space house something other than employees (stock, assembly, etc.)?
Landlords today want long term leases, and tech companies often prefer short term leases.
The hardest thing facing a tech company trying to plan its office space requirements for the future is the Uncertainty of the future. Plan as much as possible, and look for a lease arrangement that allows you Flexibility - to grow, to downsize, to end the lease if necessary.
Thanks Linda! Hope everyone learned more today about high-tech space. Bye!
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