There are many vacant call centers, conventional offices and call center-conversion-suitable retail and industrial buildings.

Ron Cariola, senior vice president of real estate firm Equis (Philadelphia, PA), reports a high 10% to 12% national call center vacancy rate, which has been driven by offshoring, consolidation, and automation (from live agents to self-service).

The key question in today's call center real estate market is whether there are available buildings in low labor cost domestic US markets.

Cariola and his colleague, Mike Morrone, Equis' vice president, say there is plenty of suitable space of all types. This includes the low-cost small city markets in the southeast and the southwest where many US call centers are currently moving.

"There had been a lot of call center-specific build-to-suit conventional offices constructed in many of these smaller markets that are now vacant because of downsizing and offshoring," explains Morrone. "Landlords can't find other tenants to fill them."

But King White, senior vice president, Trammell Crow (Dallas, TX), does not think there is as much vacant space in the smaller lower-cost markets as others perceive.

Call centers can lease vacated call center space in high-cost metros for $10 to $12 per square foot (sf) triple-net, plus some abatements like free rent.

In the better labor markets where vacated centers are located, prices will be similar - that is, if there are no competing bidders for the space.

"But if you have a bidding war going on between tenants who understand the value of the labor, the prices could escalate between $12 and $14 per sf," White warns.

Few firms have, or will, build office buildings in the small markets. The reason: call centers are often the only large user. But they want short leases that do not offer sufficient construction payback.

Few developers or landlords are going to invest in new buildings in those locations unless the user has excellent credit.

"It is tougher to find real estate financing for call center buildings, especially in the smaller markets," says White. "Wall Street is leery about such investments because of offshoring and financial stability of small and mid-size corporations."

Lease Options

Where you get the best deals on property terms depends on the market. White says it is easier to get short-term leases (five years or less) on existing space in poor labor markets because the overall property market is so soft and many vacated centers are on the market.

But where property supply is tight and a conversion or build-to-suit is required, the lease terms are typically seven to ten years to finance all of the improvements.

Where there is a match between desired locations and abundant property, call centers can dictate the terms.

Cariola suggests that call centers ask for zero net leases: those cover the space's apportioned maintenance and interest costs, with very small profit margins for landlords.

For call centers planning to expand in that labor market, they can also insist on right-of-first-refusal clauses on adjacent space.

Landlords may be interested in helping to supply equipment and furniture.

"Landlords are so desperate for tenants that they want occupancy before cash flow," explains Cariola. "They are willing to do what they can to get people in to show that the lights are on."

Call centers could also seek short (five year, exit in three year) leases, subleasing rights, and "go dark" clauses.

These stipulations give call centers, especially outsourcers, considerable flexibility. If demand suddenly changes, or the centers gain or lose big contracts, organizations are not as easily stuck with space that's no longer suitable.

But if call centers had obtained government incentives to locate there, one of the caveats might be to stay there at the labor force committed to that site for a set number of years.

"You might find it cheaper to stay in that building for the lease period than to repay governments back their incentive money," says Cariola.

Property Options

With little new construction, more call centers, outsourcers, and in-house firms are going to retail or industrial conversions, especially in the smaller labor markets.

Retail conversions are gaining more favor in boardrooms. The reasons: limited supply of conventional offices in low-wage locations, lower rental rates, shorter lease terms than build-to-suits, and speed to market.

Interior improvement cost from a cold dark shell for conversions and build-to-suits come in at $40 to $60 sf; however, the base building cost is usually $10 to 20 sf for retail versus $40 to $50 sf for build-to-suits, says White. The conversions can be ready in as little as three months, versus nine to 12 months for build-to-suits.

Another option call centers are looking into is combining call centers that have been reduced in size (from efficiencies and outsourcing) with other back office functions such as accounting and HR.

These blended call/back office or "business process" call centers typically occupy the same space or less than the former call center, explains Cariola.

There is often considerable overlap between those functions' labor markets. Call centers that want to pursue this strategy should take a close look at the labor demand, competition and turnover for each function to avoid higher costs.

There may be design issues with such blended centers. For example, call centers generate much more noise than other functions.

Mark Collmar, president of design firm, DM Communications (New York, NY), recommends that you have walls put in to separate the call center space from the others.

"Having these walls limits the noise and helps foster teamwork in the call center," he says.

Economical Design

For most organizations, improving business has not loosened up the purse strings. Consequently, functions like call centers are doing more with less space to cut costs without sacrificing employee performance and health.

Equis' Cariola reports that using interior poles to feed voice/data and power to workstations from above-ceiling plenums rather than installing raised access floors (RAF) and running the cables that way is probably his clients' top cost-saving option.

But, If done right, RAF enables much easier and far less expensive layout alterations, says Roger Kingsland, design principal, Kingsland Scott Bauer Associates (KSBA; Pittsburgh, PA). That is a factor to keep in mind as outfits change facilities to meet budgets and needs, plus better air quality and temperature control for the same price as using interior poles.

"Five years ago 80% of our call center clients declined to use RAF; now, 80% use them," says Kingsland. "Once the capital cost hurdles are overcome, the return on investment is infinite; it's classic win-win."

Call centers can buy secondhand furniture. There are plenty of good quality chairs and workstations on the market.

Call centers can make technology changes like network routing, if they are ready to change switches, to minimize size, power load and backup for computer rooms. Voice-over-IP can reduce cabling costs.

Equis' Morrone recommends flat panel monitors (FPMs) over cathode ray tube (CRT) monitors. FPMs generate less heat and energy and lower heating ventilation and air conditioning (HVAC) costs. FPMs take up less room on workstations, enabling more to be used without reducing agent comfort.

"Flat screens have come down so much in price - they are within $200 of CRTs - that they can pay for themselves in less than 18 months," says Morrone.

One tantalizing way to cut costs is to cram more workstations in the same space. However, unless you do this carefully the strategy can backfire by increasing the level of noise, causing more stress and raising turnover from irritated agents.

Instead, Cariola recommends making that part of an overall strategy to improve the environment, such as with better quality furniture, lighting, noise reduction, and the addition of colors and amenities.

"People don't like to be shoehorned into smaller spaces and told this is being done as part of cost reduction but they will accept it if you do it as part of a program to improve the overall environment," he says.

Better Design Planning

Call centers typically approach design teams after they've signed the deal on buildings. But that not only adds to time but often can lead to poor building selection.

For example, many buildings have small bays, like older L-shaped buildings found in office parks, that are inefficient and reduce layout flexibility. Older buildings with thicker columns eat up productive real estate.

"Oftentimes a client can drive us by a building and we can instantly say, from our knowledge and experience, that the building won't work for their call center," says Kingsland.

Call centers can shave weeks off opening a new facility and increase the likelihood of its success by designing their center in parallel with site and real estate selection, advises Kingsland.

The parallel approach can cut two to four weeks off initial planning and another two to four weeks of implementation.

"[Parallel working] also saves a small amount (1% or less) by reducing contractor expenses or general conditions while on site," says Kingsland. "But the real financial benefits come by enabling call centers to make/take calls sooner."

By starting early and working in parallel with the location consultants, the call center design team can work out space requirements in advance.

These include workstation design, amount of room per workstation, cubicle configurations, and optimal circulation needs in the center, between work areas, break rooms and entrances. If required, they look at shipping/receiving areas.

By working with companies' IT experts, the teams also determine the size of computer and mechanical rooms. They also work out voice/data and IT needs.

There are many design features like color and detail that can be worked out before a decision to go into a building is made.

KSBA works with clients to present and get their approval on design elements that improve productivity, such as sound masking, proper lighting, better air quality and FPMs.

Improved performance has a great impact on the bottom line, Kingsland says. A 3% increase in productivity from design is equivalent to an additional $50 per sf in construction cost.

"The beauty of the performance design is that the client gets to choose which options derive the greatest value under their circumstances," says Kingsland.

The biggest variable, between the design and the property eventually selected is the size of workroom, which can be larger, smaller, or split between floors.

"When there are differences the site selection and design teams go over them with clients and analyze choices," says Kingsland. "But by knowing what clients want ahead of time, we can save a lot of time in the workstation design, floor planning, and computer room sizing."