Lobby area of the new Olympus headquarters building
Efficiency, employees and visibility are the catchwords for new manufacturing facilities
Location, location, location” used to be the catch-phrase of real estate agents. When it comes to commercial real estate for manufacturers, however, “efficiency, efficiency, efficiency” is king.
That trend is visible in fewer square feet per employee, but increased ceiling heights. Ten years ago, 24-foot clear was the norm. Now, the construction standard is 32-foot clear. “Tenants are trying to improve efficiency by going higher rather than taking up more space,” says Tim Olsen, vice president of Carlson Commercial.
Companies are also building — and buying — their big “boxes,” rather than renovating older properties. “It can be quite expensive to move into a used building and make that your own because it’s so specific to what it was and now it’s got to be specific to what you’re doing with it,” Olsen says. “The cost to buy a building and renovate it can be almost as expensive as to build new.” The number of used industrial properties for sale is scant, as is the demand for such spaces. Prices are also on the rise; Olsen has seen as much as a 25% increase over the past 18 months. “Older buildings typically have more walls in the warehouse, they’re not as clean. There are a lot more nuances to second- and third-generation spaces,” he says.
As for whether to buy or lease, the decision is highly dependent on the individual business. “We’re seeing more companies getting out of ownership and being tenants,” Olsen says. This is because companies make more money in their business rather than in their real estate. Olsen says companies need to analyze whether or not “it’s better to dump your money back into your business rather than in the real estate.”
After efficiency, one of the key considerations for companies when considering a building is employees’ current living location. Companies that Olsen works with tend to want the least disruption for employees as possible. Visibility is also a concern; companies may upgrade their image by moving from a Class B building to a Class A building to be more attractive to potential employees.
The west metro, particularly Brooklyn Park, has seen “a rash of speculative construction in the office warehouse bulk product,” Olsen says. “That’s the only area where there’s open land.” Plymouth, Dayton, Rochester and Otsego are also seeing new construction aimed at manufacturers and distributors. “They’re trying to position themselves in the best market, in the best location, where they can find land to build on.”
Inside these buildings, open floor plans are still popular, both for industrial and office space. Companies are looking to show potential hires that the space is “fun, energetic, hip,” says Olsen. “They are trying to keep an open office area, not put everybody into individual boxes. More cubes, not putting privates on the glass. Everyone has the ability to see open, natural light. That gives them the best chance to retain and hire the best talent.”
Parking for new construction varies based on city ordinances. In general, Olsen says, developers plan for 1.5 stalls per 1,000 square feet. While there isn’t a problem of excessive parking space, per se, every parking stall does take away from potential build-out in the future.
Olympus is one company that built new in Brooklyn Park, both for efficiency and visibility. It consolidated five Maple Grove rental properties into a new 180,000-square-foot facility for its medical device manufacturing. Bringing R&D, marketing, operations, manufacturing and distributing to one location meant higher efficiency for the manufacturing as well as better operational flow.
At the top of Olympus’ design wish list were training spaces for the sales force and physicians to learn about Olympus’ products and an innovation area for R&D. The company worked with RSP Architects and Ryan Construction to create a space where it could be “very visible not only for potential patients, but for physicians as well as employees, a place where we could be very proud of working in and showing people,” says Scott Larson, vice president of Olympus’ Surgical Energy Business Center.
From conception to conclusion, the project, which was completed in 2014, took about two years and cost around $40 million. Mostly one floor, it includes a 24,000-square-foot clean room in the center of the building. The main office, seated at the front of the building, has two levels and houses support functions, customer service, finance and training.
Short cubicle walls and glass office doors lend the space a transparent feeling. “There’s no hiding here,” says Larson. The clean room is all windows; R&D does have shades, but only for confidentiality purposes.
One of the building design features Larson is most pleased with are the “collaboration spaces” which feature tables around a monitor where people can sit in comfortable chairs and work together with laptops. An on-site subsidized kitchen and cafeteria where employees can take breaks have also had unexpected benefits. “Not only does that develop relationships, that’s when the good decisions get made,” Larson says.
Three hundred employees currently occupy the site, and the building was made with 15% growth in mind. The company plans to add 100 new jobs over the next three years and has an additional 110,000 square feet of land on which to expand.
Buying bigger to account for anticipated expansion is not unusual, says Olsen. “If a company has been looking to move, it’s because we’ve already been sitting down with them for a couple of years going over our strategy for three, five, seven, 10 years. When we purchase a building, as a buyer, we’re moving into it because we needed the extra space. We need it today, right now.”
The commercial real estate trends seen in Minnesota’s manufacturing industry are similar throughout the U.S. “There’s been strong demand all over the country for a newer product,” says Olsen.