”Cold shell” office rentals can reduce companies’ fit-out costs by at least 5-10% compared to ”warm shell” spaces

More and more office building developers begin to deliver to tenants unequipped, ”cold shell” space without fixtures and finishes, observe consultants Colliers, who explain the new trend in the office sector by the fact that it has become very rare for prospective tenants to use the space taken over exactly as it is fitted out by the landlord, i.e. in ”warm shell” format.

In practice, most tenants invest at least 30 euro per square meter of their development budget for demolition and reconfiguration to adapt the space to specific needs and strategic plans. Colliers Romania’s Construction Services division provided Design & Build services for more than 10,000 square meters last year, with the value of budgets managed exceeding 4 million euro.

Relocations and expansions are no longer just opportunities for companies to optimize office space, but also an opportunity to increase employee satisfaction, productivity and engagement as employees gradually return to work on site. Thus, building owners in development are aligning themselves with new trends in the office market and, in new buildings, delivering cold shell spaces to tenants, that they fit out according to their objectives, way of working and various aspects of organizational culture.

“In our experience, office fit-out costs can be optimized by renting space in a ‘cold shell’ format instead of a ‘warm shell’, as is generally practiced in the market. The concept of renting space in cold shell format is not new, having been successfully applied for many years in the retail sector. Analysing the data gathered in over 12 years of project management activity, we believe that the delivery of turned-key office space impacts negatively timelines and budgets, including for building developers. In addition, there are also some disadvantages in terms of environmental, social and governance (ESG) criteria, considering that office fit-outs involve the installation of materials with a high carbon footprint. In the warm shell version, part of the development has a short life span, with demolition and reconstruction increasing carbon emissions” explains Alexandru Atanasiu, Deputy Head Property Management & Construction Services at Colliers.

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In other words, Colliers consultants point out that unused budget in the first phase, by delivering the space in a ”cold shell” format, can be transferred to future tenants by increasing the fit-out contribution budget from the traditional 150-200 euro per square meter to 300-450 euro per square meter, giving them even more flexibility. The difference of 150 euro per square meter represents the cost of materials of the suspended ceilings category, horizontal distribution of fresh air inlet and exhaust air ducts, electrical and data floor ducts, fan coil equipment, lighting fixtures or detection system, other than those required by the legislation in place for cold shell installation.

Besides, many construction material prices, which peaked last summer, influenced by high inflation, supply chain disruptions in China in the context of the Covid pandemic, the war in Ukraine, with a strong impact also on material availability and delivery times, have also started to drop constantly, even by up to 30%, and Colliers consultants point out that we are now seeing a balancing out of prices, at values similar to 2020. This decreasing trend over the past year is also accentuated by the low volume of office and residential developments, but partially compensated by infrastructure and industrial logistics and distribution developments.

Offering a complete solution and acting as a common contact point for all parties involved in the client’s relocation process, Colliers’ Construction service is based on two business lines – Project Management and Design & Build – covering the entire process of relocating or refurbishing office space, with the objective that each project is completed to the client’s maximum satisfaction, on time and on budget. The involvement of Colliers Construction consultants starts from the initial phases of choosing the office space and continues through the coordination of the concept design and technical design phase, planning and budgeting, value-engineering on all technical specialties and the supervision of construction and installation works, until the handover of the space and the actual relocation.

“We take full responsibility for coordinating the design process and the development work. We manage the design team and all consultants and contractors involved from the concept phase through to the authorization of the works and the clients’ move into the fitted and furnished space. We strictly control the progress of the works in the construction phase and monitor the final financial situation with all suppliers in the post-construction phase. In addition, we ensure timely communication between client representatives, owner’s project managers, site managers, and M.E.P. architecture and design managers. We handle the moving processes and procedures based on client requirements and corporate standards. Communication and coordination with all suppliers is a top priority”, adds Oana Adjudeanu, Deputy Head Property Management & Construction Services at Colliers.

Apart from the Construction Services, Oana and Alex are highly experienced in property management services and office building operations, serving in a management and consulting role on a team that manages more than 600,000 square meters of office space with a total of approximately 400 tenants, of which more than 450,000 square meters were taken over from the general contractor since 2011.

“Having all this experience in managing and operating office buildings, we were mandated by well-known developers on the market to advise on the initial design of their new projects from an operational point of view with the scope of enhancing efficiency and cost reductions for the entire lifespan. Thus, we believe we can have a meaningful impact from the initial phase of a fit-out office project, with long-term effects in the operation of the modernized space”, concludes Alexandru Atanasiu.