This document discusses the trend of landlords building out and staging vacant office space between 1,000-5,000 square feet to attract tenants. This involves renovating spaces with meeting rooms, kitchens, and open layouts to allow tenants to envision working there. It is aimed at smaller companies graduating from co-working spaces or startups needing flexible shorter lease terms. Landlords are able to fill vacancies and attract growing companies while tenants benefit from a move-in ready space without construction costs or downtime. Rental rates are higher but landlords eventually recover costs when tenants turnover.

1. JANUARY 2017
Commercial real estate takes a page
from residential real estate’s playbook
OFFICE
STAGING
OFFICE
STAGING

2. As headlines announce new office towers across
Canada, once again there is a surplus of space in
existing office buildings. Landlords are responding
by repositioning previously-tenanted premises
around the wants and needs of today’s occupier.
Capital improvements such as common area and
elevator upgrades, new HVAC systems, and the
adoption of building features that support LEED®
and WELL standards are becoming the norm. At the
same time, landlords are seeking creative solutions
for restricted term space in new buildings where
major tenants have options for additional space.
This paper explores the proactive trend of landlord-
driven tenant fit-outs where smaller vacant spaces
are built out with meeting rooms, kitchens,
functional receptions, a mix of office and open
work areas, and finishes. We call this office staging:
where base building or old fit-out space is finished
or refreshed. This allows occupiers to quickly
envision their organization in the space; similar to
the goal of home staging in a residential context,
minus the furniture. Staging techniques focus on
improving a property’s appeal by transforming
it into a welcoming, attractive, and functional
environment in which a tenant could move in
quickly and conduct business.
In office staging (also called “turnkeying”),
landlords shift from showing base building or old
fit-out to speculatively refreshed space in order to
attract tenants. These build-outs provide potential
tenants the opportunity to see exactly what they
will occupy. Kevin Hardy from Dream Office REIT
commented that Dream will “typically renovate
spaces with a few offices and a kitchenette, while
also adding interior glass to make it more modern.”
Although these build-outs are standardized, Hardy
commented that tenants have reacted well and the
results have been worth the investment.
Office staging is established in all markets across
Canada. Units that are built out by landlords are
typically smaller in size, ranging from 1,000 to
5,000 sq. ft. This unit size range is a strategic
choice by landlords, who utilize these suites both to
attract growing companies while concurrently filling
pockets of vacancy within their portfolio. Tim Low
from Allied Property REIT stated that in markets
with an abundance of available space, such as
Calgary, smaller units, typically between 2,000
to 4,000 sq. ft., are built out in order to set
themselves apart and attract smaller tenants
looking for open concept office space and
short lease lengths. Similarly, in markets such as
Montreal where small built-out units are highly
sought-after, any unit below 3,000 sq. ft. is
automatically built out.
Within the financial core and greater core
submarkets in downtown Toronto, there is just over
800,000 sq. ft. of office suites within this size range
available for lease. Bob MacNicol of Brookfield
said “larger tenants typically want to build out their
offices themselves, whereas growth tenants are
focusing their energy on their company growth and
don’t want to be bogged down with the hassle of
designing their office space.”
Office staging costs the landlord between
$50-100 per sq. ft., often less than what a tenant
would pay since the landlord has both experience
with build-outs as well as economies of scale.
Tenants who opt to locate in these spaces pay a
premium on rental rates, which ranges anywhere
from $4.00 to $10.00 per sq. ft. Despite the
higher rate, landlords do not fully recover their
investment in the space with the first occupant.
The cost recovery typically comes when units turn
over, as often only minor renovations are needed.
Landlords benefit from this long-term approach
as higher rental rates offset the capital investment
associated with the initial renovation, while also
offering the opportunity to develop relationships
with tenants.
Office staging results in
a better tour, better lease,
and better turnaround.
Kevin Hardy, Dream Office REIT
1 | OFFICE STAGING

3. Companies startup in an incubator, home
office, a basement environment, or a coffee
shop. Once more established, the company
expands, and the space in which they started
is outgrown.
Co-working space is a good first alternative
due to the flexibility of commitment, which
ranges from as little as one hour to years in
length. This provides the organization with
options to accommodate for changing space
needs. However, due to the flexibility and
amenities offered, the value of co-working
space can be eroded once companies reach
a certain size threshold. In a CBRE survey of
different co-working facilities, the average size
of companies using co-working facilities was
one to three employees. As companies grow,
a more cost-effective occupancy solution is
required. According to CBRE Research, one-
third of co-working users expect to graduate
to leased offices.
Built-out office space allows for tenants to
locate in traditional office buildings, without
the hassle, capital investment costs, and
risk of building out their own space. In
addition, landlords offer shorter lease terms
for built-out space, providing flexibility that
is useful given the changing nature of these
companies. Of active listings in downtown
Toronto under 10,000 sq. ft., lease terms for
built-out space include shorter options than
non built-out units.
As organizations become larger, more stable,
and move to the next stage of development,
they may transition from “staged” space into
traditional office space. Doing so allows them
the freedom to brand and design the space to
best suit their needs and obtain the security of
longer lease terms and lower rental rates.
As Companies Grow,
Their Space Needs Change
Company Growth Stages
START:
INCUBATOR
EARLY
GROWTH:
CO-WORKING
SPACE
LARGE
OCCUPIER:
TYPICAL
OFFICE
LEASE
CONTINUED
GROWTH:
“OFFICE
STAGING”
SUITE
OFFICE STAGING | 2

4. Class A Active Listings:
Greater Core and Financial Core
(0-10,000 sq. ft.)
Building out a suite can cause tenants to
become bogged down, which wastes both time
and money. Built-out suites make real estate
transactions as easy as possible.
Joshua Glass, Amacon
CLASS A BUILT OUT -
342,189 SQ. FT.
CLASS A BASE BUILD -
124,010 SQ. FT.
28%
72%
3 | OFFICE STAGING

5. Competition: Co-working spaces provide
alternative office spaces in a fully built-out,
easy transition space. In doing so, competition
within the office market for smaller tenants has
intensified. By building out small suites, large
landlords remain competitive.
Size: Small units, between 1,000-5,000 sq. ft.,
can be more difficult to lease. Through office
staging, smaller pockets of space can be
leased at a higher velocity.
Term Space: Term space may sit empty as
larger tenants have first right of refusal. A
short-term leasing alternative lets landlords
earn income on the space without jeopardizing
the relationship with the larger tenant.
Landlords are implementing creative solutions
for term space in newly-constructed towers
where major tenants may have options for
additional space.
Vacancy and New Supply: In market
segments that have higher vacancy rates,
landlords have utilized office staging to
set apart their space from the multitude
of options that are presented to tenants.
Similarly, in markets where Class B
or C properties cannot compete with
new construction, office staging lets the
landlord offer the modern amenities, and
layouts that appeal to tenants.
What Prompted Office Staging?
The #1 goal of the landlord is reducing
vacant space, while also adding strong
tenants into the portfolio.
Bob MacNicol, Brookfield
OFFICE STAGING | 4

6. COST & TIME
Built-out suites are leased at a premium rental rate, as the cost of the build-out and associated risks
are factored in. That said, landlords typically have greater buying power and experience, allowing
them to renovate spaces more cost-effectively than tenants. From a timing perspective, built-out
suites allow for a quicker and smoother transition, which eliminates business downtime for tenants.
Model suite-ing has taken the headaches
out of the construction process and made
things easier for our clients.
Kevin Hardy, Dream Office REIT
Everyone wants space instantly, and the
fit-out process consumes time that you
could be devoting to your business.
John Peets, Oxford Properties
Tenant Perspective:
Three Factors to Consider When
Looking at Built-Out Space:
1
Building
Average Asking Rental
Rate Model Units
Average Asking Rental
Rate Large Units Difference
Exchange $38.00 $28.00 $10.00
First Canadian Place $39.75 $30.50 $9.25
Bay Adelaide West $39.00 $35.00 $4.00
Bay Wellington Tower $42.75 $34.50 $8.25
Bay Adelaide East $42.75 $36.00 $6.75
5 | OFFICE STAGING

7. LEASE LENGTH
One of the primary draws of co-working spaces is that there are a variety of term lengths available,
from as little as a few hours, to years, depending on the provider. Turnkey suites provide tenants
an option beyond co-working by offering shorter/more flexible lease terms. Landlords are typically
supportive of shorter terms as gaps in their portfolio, particularly term spaces, are filled. In addition,
built-out space allows landlords to attract potential growth tenants, who may opt to remain within
the landlord’s portfolio when it comes time to expand.
ATTRACTING AND RETAINING TALENT
Co-working spaces may not provide the privacy, cost-effectiveness or layout that a tenant requires.
In these cases, built-out suites are a practical alternative. Depending on the lifecycle of the
company, a formal reception area or a workspace in a particular location may be important to
attract and retain talent or appeal to potential clients, making built-out suites far more attractive.
Our tenants are using their space as a recruiting
tool to attract and retain talent, while also building
their brand. Through utilizing model suites, smaller
tenants, particularly technology startups, are able
to use their space as a tool to compete for talent
without a significant impact on their bottom line.
Tim Low, Allied Property REIT
2
3
OFFICE STAGING | 6

8. Moving forward, commercial office staging offers
the potential for creative partnerships. Landlords
can experiment with and use the model in various
ways to stay current with workplace and tenant
trends, and apply inventive, win-win solutions to
attract and maintain smaller occupiers.
What is the future for
office staging?
CONTACTS
RUTH FISCHER
Director, Client Solutions
Advisory and Transaction Services | Occupier
T 416 847 3253 | ruth.fischer@cbre.com
WERNER DIETL
Executive Vice President, Regional Managing Director
Toronto Downtown Office
T 416 815 2388 | werner.dietl@cbre.com
FRANCES HEENEY
Senior Research Analyst
Canada Research
T 416 874 7263 | frances.heeney@cbre.com
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