_What can Silicon Valley teach us about attracting tech occupiers to global real estate markets?

Bill Benton lives and breathes tech. Not only is he an accomplished producer of digital movies in his spare time, he also spends his working hours letting space to some of the household names in digital technology.

Over a 20-year career, Bill has leased more than six million sq ft to tech companies in Silicon Valley. Who better, therefore, to provide insights on the art of attracting tech tenants?

Lee Elliott: Bill, you have been a market-leading broker within the undeniable hotbed of tech, Silicon Valley, where you have operated for more than 20 years. What changes have you seen over that time in tech occupiers and their real estate needs?

Bill Benton: I would say that the definition of what a large tech tenant actually is has significantly changed. Going into this cycle a 100,000 sq ft tenant was a big deal in San Francisco but today there might be 30 different 100,000 sq ft occupiers that are active in the market and looking for space. And now, all of a sudden, 300,000 sq ft and 400,000 sq ft occupiers are becoming somewhat normal.

LE: Let us turn to the art of attracting tech tenants. What influence does the physical design of the product have on the occupier’s decision-making process?

BB: High ceilings, side cores, phenomenal access to public transportation and local amenities are all of critical importance and high on the checklist of the tech occupier. The building also has to be on the side of town where the talent lives. The built-out office space also has to typically abide by the 80/20 rule.

That is, 80% open space and 20% with hard walls. There is also a need to provide insanely cool break areas and drop down areas where people are able to collaborate and be productive without being chained to their desks.

In that respect, if I have learnt one thing to pass onto landlords who are trying to attract tech tenants, it is simply spare no expense on the fit-out of the space, but be clear about what you need to provide and retain absolute control over the fit-out process.

LE: That point about the side core, why is that so important?

BB: The tech community is all about collaboration. They are all in benching style space and the whole idea behind benching is that everyone can see everyone else.

So if you put in a large centre core to house elevators and services, you are removing the very thing that the tenant is most wanting to achieve – line of sight and the ability to collaborate fully across the floor.

A side core building removes the problem. Obviously, it pushes all the elevator works and services to the side and means that when you come out of the elevator you can see the whole company, you can feel the buzz; you can feel the energy and you can drive through the space the collaboration necessary to support the growth and development of tech tenants.

LE: I know that you often tour internationally with your tech clients in the hunt for space. What would you say is the greatest difference in the viewing process overseas when compared to your home market?

BB: In the United States, we typically see second generation space, reusable space or, in the heart of tech markets, new office space being speculatively built-out.

When we tour internationally with our clients we are constantly being shown Cat A space which has a couple of problems. First, it makes all the space we view look the same. There is no differentiation and it is hard for the prospective tenant to visualise how the space is going to look, feel and work.

It is very hard for the landlord’s product to stand out because we are essentially viewing a range of identical cold boxes! Secondly, and crucially, these fast growing tech clients do not necessarily have the real estate departments, the bandwidth or the time to be involved in massive build-outs on the other side of the planet.

So the value of seeing something that is built-out is that it will stand-out above everything else and, so long as the space is in the right location, put it at the top of every list.

LE: Where do you think landlords most often take a wrong turn when seeking tech occupiers?

BB: In my experience, it is when landlords give over control of the fit-out to the tenant. What then happens is that you have space which is too bespoke to the occupier, has design features which do not typically transfer over to the next tenant and thus create both expense (for either occupier or landlord) and increase the risk of downtime and expensive voids (for the landlord).

Retain control of the fit-out, make the fit-out of the very highest quality but keep it simple and focused on fundamental needs rather than flashy design statements that have no functional value.

LE: We often hear concerns from landlords about the costs of delivering some of the things that you have noted as success factors. Are they justified?

BB: Absolutely not! In fact, they are not even paying attention to the value that they could be generating! Anybody can run a model. It is not that complicated.

The key component of the model is that you buildout great space. When you do, what you have to understand is that you won’t have any downtime.

In fact, you will have competition for the space, which means that you won’t have to give away free rent because you will have at least two competing offers.

That competition also means that you can certainly assume a higher rental rate. Finally, and more importantly, when that initial term is over – whether the tenant renews or moves out – you are right back in the same boat again. No downtime. No free rent.

So long as you buy into the fact that you must create a commodity that everybody wants then the model is self-explanatory and works! When we model a 20,000 sq ft office, the return on investment (ROI) when building it out with a high end build-out versus not building it out at all was 6% over 10 years and 18% over 15 years. So yes, investment is required to ensure success but it has significant payback.

LE: Bill, thanks for your insight. In closing, you have had 20 years in such a tech-rich market. What do youNsee emerging out of Silicon Valley over the next five years that either excites or worries you?

BB: In terms of exciting and emerging technologies, we see a tonne of activity. Some of the big movers right now are the driverless car companies.

There must be 15 different driverless car companies in the Bay Area, and three or four of them in San Francisco are all occupying significant amounts of space. Cruze Automation, which is part of General Motors, just took out another 300,000 sq ft in a deal where Newmark Knight Frank representedNthe landlord.

This company took over 150,000 sq ft in the market just last year! So the driverless car companies are taking a lot of space in our market. Bio-tech and life sciences are still growing significantly and we also have companies linked to the Internet of Things growing too. Big data is growing. The social media guys are still growing. Some of the challenges are that the big guys are buying out the little guys before the little guys have a chance to scale.

This is a trend that stifles innovation and while enriching founders does not allow the rank and file of the company to participate in the upside. I remain optimistic. There is no sign of Silicon Valley losing its ability to create, nurture and grow new technologies.

That has to be good, not just for the Valley, but for tech markets around the world.

Download the first edition of (Y)our Space or find out more: