Tenants Love Prebuilt Office Suites. Landlords Are Sick Of Them

D.C. office owners in the postpandemic era have built out a slew of spec suites — designed and furnished spaces that allow tenants to move in quickly and offer flexibility on lease terms. 

The concept has historically been somewhat of a win-win. Along with those benefits to tenants, landlords have been able to save on tenant improvement allowances, use slow periods to prepare for future demand, and position the suites as a competitive advantage.

But in an environment of high construction costs, paired with the glut of spec suite supply, landlords say they have become more of a drag on their bottom lines.

The problem: They’re popular.

According to data from CBRE, while spec suites make up 6% of the office availability in D.C. proper, they account for 76% of the city’s relocation demand for deals 5K SF or smaller.

“Spec suites are a necessary evil,” TMG Group Senior Vice President of Leasing Katie Yanushonis said last Thursday at Bisnow’s DMV 2025 Office Summit, held at 101 Constitution. “So it's kind of a damned if you do, damned if you don't.”

At the end of August, there were 475 available spec suites totaling 2M SF in D.C. proper, according to data provided by CBRE.

Because of this, they have become a run-of-the-mill addition when investors are undertaking renovations to try and boost demand. 

The owners of an office building on K Street that is more than 40% vacant are building out two floors of spec suites as part of a $25M renovation that began this spring. 

In-Rel Properties and Banyan Street Capital are adding spec suites to their new office acquisitions in downtown D.C., and Global Holdings Group delivered them to Washington Harbour in Georgetown last year, with more than half preleased. 

In Virginia, Monday Properties announced this summer that it would overhaul the second floor of Three Ballston Plaza with spec suites and an amenity center, a project expected to be completed this fall. 

Silverline Equities is adding spec suites to its renovation of a 1980s-era office building in Old Town Alexandria, in which it recently acquired an equity stake.

TMG is building out a full floor of spec suites at Tysons Central, a fully vacant, 24-story tower that it purchased from Foulger Pratt this summer.

TMG has spec suites in 24 of its 25 properties, Yanushonis said, adding that the spaces are roughly 90% leased and the average lease length for spec suites is 6.7 years.

All of the activity has saturated the market for the product. 

“We’re not necessarily against it by any means, but I think it’s almost like a cautious awareness that there is a good amount of product on the market,” District Wharf Properties Senior Vice President of Investment Management Monte Lippert said. 

In addition to the competition new spec suites will inevitably face in the market, they are becoming more cost-prohibitive to build. 

“All of these gray hairs are due to, one, my children, and two, trying to value-engineer floors of spec suites over the past couple years,” Pizzano Contractors Preconstruction Director Will Pizzano said.

Yanushonis said that while build-out costs for spec suites used to come in around $85 per SF, they are now in the range of $140 per SF.

“Construction costs are so damn high right now,” Yanushonis said. “The benefit once was you have to give a tenant a TI of $100 per SF, but you can build out yourself for $85. You're not seeing that value discount anymore.” 

Because of the cost and uncertainty that they will lease, getting investors to buy in is difficult, Lippert said. 

“Just because there’s a portion of space that is maybe left over or less desirable or it’s encumbered or whatever the reason, you’re not necessarily looking to put $150 per SF into the space in order to build it out,” he said. “You need a plan. You need to vet it, you need to underwrite it, really doing your homework. Otherwise, it’s a difficult uphill battle to convince your investors to go that route.” 

CORRECTION, OCT. 17, 10 A.M. ET: A previous version of this story misstated the name of Banyan Street Capital. It has been corrected.