Q&A: Technology is a key part of the location equation
In today's technology-driven economy, suitable office space that offers hi-tech enhancements is now at a premium in terms of demand and price. Telecommunications infrastructure is now seen as a critical factor in determining where today's companies will choose to locate.
John Martin, President of The Cavan Group, a Boston–based technology consulting and advisory firm, provides some insight for both landlords and tenants when considering leasing office space suitable for hi-tech operations.
Q: Why has a building's technology infrastructure become such an important criterion for tenants in their search for space?
A: Most companies today, especially those in the e-commerce space, rely almost entirely on the Internet for business survival. The Internet connection has become the umbilical cord that tethers them to the marketplace, and even a brief interruption in this lifeline can cripple a company's ability to function.
Q: What differentiates one building from another when it comes to technology?
A: Virtually every commercial office space has a telecommunications infrastructure capable of providing the basic telephony and data requirements of most tenants. These services have traditionally been provided by the incumbent local exchange carriers (Baby Bells) at little or no cost to the building owner or manager.
The difference between basic and advanced buildings is the additional technology services that the landlord has added. If a building owner wants to continue attract tenants, they will provide a choice of several Internet services providers and telecommunications options for their tenants. They should have at least two fiber optic links to the property, provided by separate carriers and following diverse paths. It is not unusual to add a wireless provider to the roof to provide yet another point of access for those tenants that require high-availability of Internet service.
Q: Where are the most technologically advanced buildings located?
A: The vast majority of Class A and Class B buildings in Cambridge, downtown Boston and the Back Bay have excellent technology infrastructures. They have benefited from an influx of competitive local exchange carriers (CLECs) and fiber optic network providers over that past 10 years.
The suburbs, however, are spotty when it comes to choice of carriers and service providers. Tenants will have to research this on a building-by-building basis. Unbelievable as it may seem, but less than 20% of the suburban Boston office space that was built since 1998 has made any accommodation for advanced technology services.
Q: Are all "technologically advanced" buildings comparable?
A: Unfortunately, no. Much of the information disseminated about a building's technology infrastructure can be misleading. Particularly in the suburbs, landlords have finally recognized that this is a "hot" issue, but few are willing to allocate the financial resources to enhance their building's technology base. Tenants should beware of the marketing hype versus real infrastructure options and services.
Q: Do landlords and tenants have the same goals in mind?
A: It is in the best interest of the landlord to ensure that their buildings attract quality tenants with staying power in their respective markets. Likewise, it is in the best interest of the tenant to ensure that the building is positioned for their current and future technology requirements. It can, however, become a contentious issue as to who pays for the enhanced infrastructure, the landlord or the tenant.
Q: What are the challenges facing landlords in this technology-driven market?
A: Landlords have been inundated by requests from a variety of CLECs and "premise-based" service providers to gain access to their buildings. These companies are offering everything from Internet access, to local and long distance services, dark fiber, wireless local loop, etc. Many companies will entice the landlord with promises of revenue-sharing, equity deals, and free infrastructure improvements.
The challenge, as in any emerging market, is to be able to identify the long-term, quality service providers from the latest hot CLEC that is trying to buy market share in the region. Compounding the issue is that many of the larger property portfolio owners have signed national agreements with telecommunications service providers, agreements that are often at odds with locally forged relationships between building manager and vendor.
Q: What do you see as the future of telecommunications and technology as it relates to the real estate market?
A: Technology trends are probably the most difficult to predict since the market focus can change within a period of months. With over 500 nationally registered CLECs, it is inevitable that there will be a substantial consolidation of services providers over the next 12 to 18 months. Consolidation can have an enormous impact on both tenants and property owners. We have already witnessed some early merger and acquisition activity with AT&T/Teleport, and MCI Worldcom/MFS, resulting in some buildings losing their "alternate" carrier status.
We believe that the overall telecommunications services industry will become even more commoditized, driving prices lower, but adversely impacting service and customer satisfaction.
On the premise side, we see less lucrative deals for landlords and a change in the power base from the building owner to the service provider.
