Choosing office space not always so easy

Finding the right location for an office in Las Vegas usually comes down to time and money.

How far are you willing to drive and how much are you willing to spend?

Lawyers probably like to have their offices downtown near the courthouse. Financial and brokerage firms may prefer the prestige of a Hughes Center address. Startup companies may be relegated to cheaper office space on the city's east side.

Office site selection is determined by a multitude of factors, including cost, location and availability, said Brad Peterson, an office broker with CB Richard Ellis in Las Vegas.

"Of course the rental rates, but tenant improvement costs have gone up so much, they need to be aware of the large difference on the shell space of what the landlord gives them and what it costs to build it out," he said.

Average office lease rates are $1.97 a square foot for the second quarter, CB Richard Ellis research analyst Jessica Willett reported.

Office users can tack on $60 to $80 a square foot for tenant improvements, or the work that needs to be done to make an office compatible for the tenant, Peterson said.

Thomas & Mack Development Group President Rick Myers said the biggest issue in office development and leasing today is the cost of tenant improvements.

"Our town is so busy doing multibillion-dollar projects, it drives up the cost of labor and materials," he said. "It's very difficult to get a subcontractor with a multimillion-dollar contract at CityCenter to focus on a 3,000-square-foot office TI (tenant improvement)."

Developers have paid a tenant improvement allowance of about $30 a square foot to build out office space, and now it's closer to $40, Myers said. Tenants pay for upgrades such as stone in the lobby and wood paneling.

Monthly lease rates vary from $1.50 a square foot for second-generation office space on east Flamingo Road to $3.50 a square foot at so-called Class A office parks such as Hughes Center, which includes power and janitorial service, Colliers International office broker Dean Kaufman said.

Most leases are signed for five years, with better rates for more space and longer terms. It's going to take about $20,000 to cover the first month's rent and security deposit for a typical 5,000-square-foot office user to move in, he said.

Developer Kenneth Smith of Glen, Smith & Glen said some companies prefer to own their offices, which will cost between $240 and $275 a square foot for the empty shell. Different people have different motivations about buying or leasing, he said.

"We build a nice park and give people a choice. The opportunity to own a building in a nice professional park is rare," Smith said. "I don't pay rent for 20 years, I pay myself. When I retire, I either sell my asset or rent to someone else. That's a retirement plan."

Businesses that choose to lease rather than own office space can expect less capital outlay up front and are more likely to find a suitable location where buildings already exist, Kaufman said.

"The first thing to look at is where they need to be," he said. "It doesn't make sense to run around the valley. The other thing is size, how many people you're going to fit in. There are formulas, but it varies with the type of business. An attorney needs more square feet per employee than a call center for insurance claims."

Basic office supplies will cost about $50 for each employee to start and then about $30 a month afterward, said John Eary, vice president of Office Plus of Nevada. Startup businesses can also expect to spend $180 for a fax machine, $400 each for desks, $125 for desk chairs and $100 for guest chairs.

"Please keep in mind these are averages," Eary said. "While some may be less, there are certainly other options that are more expensive."

Companies usually look for two types of office space -- newer, Class A office buildings rising up along the freeways and existing, second-generation office buildings in the older areas of Las Vegas, Peterson said.

Second-generation office space is highly sought for cheaper rents and lower tenant improvement costs, but it may not have the right configuration for would-be tenants, Peterson said.

"It's unusual to find second-generation space for a new company moving in that fits what they want," he said.

Las Vegas developer Jeff LaPour is building his own three-story, 70,000-square-foot office building west of the Las Vegas Beltway on Diablo Drive. The $19 million project will be ready for occupancy in first quarter 2008, he said. LaPour Partners will take about 6,000 feet and lease the rest.

"We're growing and we're out of space," LaPour said of his current 3,000-square-foot office at 5525 S. Decatur Blvd. "We have to relocate. We decided we wanted a professional office environment and freeway visibility. Plus it's closer to where most of our staff lives and traffic is becoming more of an issue here every day. We bought the land a year-and-a-half ago and made the decision that's where we're going to be. It cuts the commute time down so people are happier."

The southwest and southeast submarkets account for nearly half of the 2.83 million square feet in new office space under construction in the valley, CB Richard Ellis reported. Demand for office space remains strong in Las Vegas with net absorption on pace to match or exceed record levels achieved in 2006, Peterson said.

Stephanie Wilson found a convenient location for her new company, Wicked Creative, at 3070 W. Post Road, near Russell Road and Dean Martin Drive, just five minutes from the Strip.

Total occupancy cost for tenant improvements and completion of the 3,400-square-foot office was about $70,000, which included tearing down and putting up new walls, replacing the carpet, painting and buying custom-built furniture. Rent is $1.30 a square foot a month. She has 10 employees.

"For us, an advertising and public relations firm, we wanted to develop a creative environment on a small budget," she said. "We still want to create an impression for clients with things like our synthetic grass wall and slate tile in the entryway."

Medical office users expect to receive a minimum of $50 a square foot from landlords for tenant improvements, CB Richard Ellis office broker Jan Hoback said. The typical cost of a medical office build-out is around $75 a square foot and sometimes will exceed $100 a square foot.

Leasing activity is expected to remain strong through the fourth quarter, Hoback said. There's significant interest in building surgery centers and several national developers are investigating these opportunities, she said.

Thomas & Mack has begun construction on a three-story office building at Beltway Business Park, the third of four symmetrical buildings that will total 292,000 square feet. Myers said the mixed-use park at the Las Vegas Beltway and Decatur Boulevard is emerging as an important address for professional businesses throughout the valley with its central location and freeway access.

The southwest is definitely a hot spot for office development, Kaufman said. In general, anything close to the Beltway gives your office greater access to clients and employees, he said.

This story first appeared in the Business Press. Hubble Smith is a writer for Business Press' sister publication, the Las Vegas Review-Journal. He can be reached at hsmith@reviewjournal.com or 383-0491.