Brokers Pick Up on Call Center Opportunities in Small and Midsize Markets.
Despite the annoyance of having dinner interrupted by overeager telemarketers selling insurance or phone service, Americans have responded to phone sales in a big way. Nearly 100 million people purchase goods or services over the telephone each year, according to the American Telemarketing Association. Telephone marketing alone accounts for more than eight million part- and full-time U.S. jobs, say ATA and the New York-based Direct Marketing Association.
This translates into a growing commercial real estate niche that is spreading from large metropolitan areas to smaller towns and cites that welcome the jobs that outbound and inbound call centers bring. Conversion opportunities exist for industrial, big-box, and other large, single- or two-story structures in a variety of locations. However, this specialized niche demands specialized knowledge of the market.
For most of this century, call centers were divisions of the companies they served; today the fastest-growing industry sector is independent businesses, says Susan Arledge, SIOR, founding principal of Arledge/Power Real Estate Group in Dallas. "Complete outsourcing has resulted in a huge industry of third-party service bureaus whose sole purpose is to provide inbound or outbound calling centers," she says. Among the larger call center operators are ACI Telecentrics of Minneapolis; Sitel Corp. of Omaha, Neb.; the Henley Group of Portland, Ore.; the Sennett Institute of Columbus, Ohio; and Link to Success of Minnetonka, Minn.
This expansion brings new opportunities for commercial real estate brokers. A 1996 ATA survey, the most recent available, estimated about 60,000 U.S. call centers at that time. The Alter Group in Chicago projected that 10,000 more opened in 1997. A significant number are highly sophisticated operations requiring separate facilities specifically designed to handle large-volume telephone operations.
Finding appropriate sites is far more difficult than it might appear, say brokers experienced in call center development. Successful placement increasingly requires industry-specific expertise. Arledge/Power, for example, has established its own national telecommunications division that deals exclusively with call centers.
General Site Selection
Few call center site decisions today are made on a local basis, according to Will Augenbraun, a senior associate with Colliers International in Philadelphia, who says that both corporate and third-party service operators conduct national or regional searches for appropriate sites. "Generally clients come to us and say they want to be in one of 12 cities. They ask us to help them gather labor and real estate information on those markets, then put together a report. Next we sit down with the client and narrow the list down to two or three cities for more intensive research," he says.
Selection criteria vary by client, but comparatively low real estate costs and a qualified, available labor pool usually are high on the list, Augenbraun says.
Finding appropriate markets has become more difficult as the number of call centers has proliferated, he adds, because companies prefer not to put their centers too close to others for fear of losing employees to competitors.
Arledge says first-tier call center markets such as Dallas, Phoenix, Denver, Baltimore, Chicago, Atlanta, and Kansas City are becoming oversaturated. Secondary markets such as Tucson, Ariz., Colorado Springs, Colo., Lexington, Ky., and Albuquerque, N.M., face the same problem. Companies now have to look at smaller cities, she says.
A survey by the Alter Group and the International Association of Corporate Real Estate Executives revealed that 71 percent of respondents planning to add call centers will build them in the northern Plains states of North and South Dakota, Nebraska, Wyoming, and Montana. Manitoba, Saskatchewan, and Canada’s Maritime provinces also are becoming popular, the Alter Group reports.
Many cities are anxious to land call centers because of the industry’s promise of continued growth. Bob Barrineau, a broker with CB Richard Ellis in Charleston, S.C., says many companies have located call centers in his state because it has a program designed to train workers to meet the needs of particular employers.
In Corpus Christi, Texas, the city has targeted call centers for special consideration because they produce a large number of jobs relative to the costs of public services, according to Jim Villaume, CCIM, MAI, a broker with Steve Roberts Realty Associates in Corpus Christi. So far, five call centers have located there, he reports. To attract the centers, the city helped companies find sites, underwrote employee recruitment and training, provided low-cost loans, and fast-tracked the approval and permit process, he says.
Choosing a Specific Site
Call centers have numerous geographic and physical requirements. Geographic considerations include access to major arteries and mass transit and proximity to shopping, dining, and banking.
Centers should be located where employees can get to them no matter what the weather, says Mary Ryder, director of operations support for Valic, a division of American General Corp., in Houston. "The real estate professional needs to select sites that are accessible during the primary type of inclement weather for the area. For example, it would be desirable to be on a snow route in Colorado or away from flood-prone areas in Houston," she says.
For physical characteristics, Barrineau says, a neighborhood must have fiber-optic cable in place to meet centers’ massive communication demands.
A property also must have a reliable source of power, including backup power in case of emergency, says Marc Schiff, principal in charge of DCSW Architects in Albuquerque, N.M., who recently designed a call center for Citicorp before it became part of Citigroup. "The level of backup varies, but most call centers want at least some protection against power outages. Citicorp has 200 percent backup because keeping the lines open is absolutely essential for them," he says.
Parking is another crucial consideration. "Call centers are very high density. An office space that might accommodate 100 employees for most businesses could accommodate 200 as a call center," Ryder says. Schiff recommends a ratio of five to six spaces for every 1,000 square feet of workspace. Some call centers require as many as 10 spaces per 1,000 sf, Augenbraun says.
Many buildings — offices, schools, warehouses, and retail centers — have been converted to call centers, according to various brokers. The major criteria, they say, are large unbroken work areas that can accommodate a lot of people and provide for easy circulation. Surprisingly, respondents say taking over an existing call center rarely saves money because technology advances so fast and individual company requirements vary so widely.
Barrineau recommends avoiding multitenant buildings with more than two stories, because the high number of call center employees puts too much strain on elevators, stairways, restrooms, and other common areas. Even in single-tenant buildings, call centers work best in one- and two-story structures, Schiff says. Because call centers are so expensive to operate, the added structural and system costs for taller structures cannot be justified, he says.
Many brokers say their clients prefer leasing or buying existing structures to building new, since existing buildings usually can be permitted and outfitted faster than new structures.
Many vacated retail and industrial buildings also are available cheap because there are few prospective takers, Barrineau points out. For example, National Car Rental bought an abandoned 80,000-sf Kmart store in Charleston, S.C., and converted it into a call center, he says.
Call center system requirements quickly add to the cost of conversion, Schiff cautions. "The building needs to be able to accommodate all the power and data transmission cables. You need at least 14 inches of space either above the ceiling or below the floor to carry all the lines, and you need a way of bringing the lines to each work station," he says.
Call centers also need greater heating, ventilation, and air conditioning capacity than most office, retail, or warehouse buildings have in place because of the amount of machinery and the density of employees. The number of windows also is an issue. Warehouses and big-box retail structures typically have a minimal amount of glazing, most of it near the front. Call center owners generally want natural light throughout the interior, which usually means cutting more openings for windows and skylights.
In the end, Schiff argues, you rarely save much, if anything, by converting rather than building new. "You end up taking everything down to the shell anyway, and the shell of a building is a relatively minor expense. The cost is in the building system’s infrastructure, and that’s going to be just as expensive in an old building as a new one. It may well cost more," he says.
Although the image most people have of a call center is a dismal room filled with inexpensive furniture and operators jammed in so tight they can hardly breathe, the reality today is quite different.
"You’d be surprised at the quality of the buildout," Barrineau says. "The call centers I’ve been involved with have state-of-the-art cubicles, carpeting on the floors, textured walls, nice lobbies, solid wood doors, and either a lounge or cafeteria."
Those perks are necessary. "The market for telephone reps is so competitive today, you have to make the workplace interesting. If you don’t, employees won’t stay," Augenbraun says.
The Citicorp call center, according to Schiff, has fitness rooms, outdoor recreation areas, and a cafeteria with a selection that would "rival any shopping center food court in Albuquerque." Other call centers include running tracks, basketball courts, and lounges with easy chairs and sofas.
Barrineau estimates that rents for converted buildings housing call centers generally are a little less than class A office rents after factoring in tenant improvement costs.
Basic acquisition and construction costs, whether converting or building new, probably run about the same as those for a high-tech research and development structure, Schiff says.
Avoiding the Pitfalls
Choosing a building that in the end does not work well can lead to strained landlord/tenant relations in lease properties, warns Matt Pear, CCIM, principal of Sidney Consulting in Mountain View, Calif., who helped Pacific Gas & Electric consolidate a number of local call centers into three regional centers. "When you have a leased facility, you’re doing a lot of improvements whose cost you may not be able to recover when you leave," he says. Worse, he adds, tenants may end up paying to remove improvements if the landlord thinks they make the property more difficult to re-lease.
Tenant improvement costs also hamper lease negotiations, Barrineau says. Usually the tenant wants the landlord to foot the cost and amortize it through the rent. But the costs can be so high that the landlord is reluctant to pay for it all.
In addition, call center operators typically want five-year rather than 10-year leases, which exacerbate the problem, Barrineau continues. "It’s difficult for a landlord to amortize the improvements in five years without raising the rent to a level that’s unacceptable to the tenant," he explains. "But the tenant doesn’t want to tie himself up for 10 years because the call center industry is changing so fast the facility may be outdated before then."
Financial assistance from local governments can help in these situations, Augenbraun says. "We try to negotiate with the local community and economic development people because we’re adding about 500 jobs to [the] local economy when we bring in a call center. We look for some kind of assistance," he says.
According to Arledge, local jurisdictions use any number of incentives to attract call centers. Job development tax credits probably are the most common, she says, but waiving various building fees, offering low-interest loans, paying for infrastructure improvements, and even granting direct subsidies are not unusual.
The call center industry is undergoing significant changes as the market expands. The biggest trend, Augenbraun says, is the move away from multiple regional operations to a few superregional centers. "Centers in excess of 100,000 sf are becoming the norm. It’s not really efficient to have 30,000- to 50,000-sf facilities except for small companies who prefer to keep customer service operations in-house," he says.
Call center companies also are merging, notes Ryder, which also contributes to a move toward larger facilities and consolidated operations in fewer locations.
Not all trends in the call center industry are positive. For example, new regulations and new technologies are making it easier for people to block telemarketing calls, which ultimately could have a significant impact on that segment of the call center industry. Increased Internet use could negatively affect customer sales and service.
But these trends pose little danger to current call center development, as the demand in most regions continues to grow. As with other national commercial real estate trends, opportunities exist for local brokers who are on the cutting edge of their market. Though Augenbraun has helped land call center properties in various regions, he emphasizes the importance of working with a local broker with good community connections. "Only local people really know the local market," he says.