by King White, on Feb 17, 2014 4:39:00 PM
In the 90s, the cost to build a new call center began with the investment in a million-dollar phone switch. Whether your company needed 100 workstations or 1,000 workstations, the up-front investment caused a barrier to entry for many companies trying to set up new call centers.
Today, companies of all sizes are able to quickly set up new call centers anywhere in the world utilizing the latest VOIP technology and cloud-based software systems. However, there still is a need to address the capital investment required for construction, furniture, IT equipment, and a backup generator. These costs can quickly add up to between $2,500 and $10,000 per workstation to set up a fully functional call center facility.
As a result of building out hundreds of new call centers across the world, Site Selection Group has established benchmarks to help companies budget for their next call center facility. This article provides a summary of the costs to set up a new call center in the United States based on three scenarios — vacated call center, retail conversion, and build-to-suit.
Vacated call centers are the least expensive option but often have hidden costs
There are currently more than 850 vacated call centers available across the United States, according to the database maintained by Site Selection Group. The advantage of utilizing these vacated call center facilities is that they typically require the least amount of up-front capital and less time to become operational. The condition of these facilities will vary significantly so companies need to be aware that there are hidden costs such as insufficient mechanical and electrical systems that typically can’t be identified when touring the site. You also need to understand why the call center facility closed. Was there a labor problem? Is the market saturated? Or did the previous company lose a contract?
The following table provides a summary of the business terms to expect for a vacated call center facility:
| Item | Terms | Comments |
|---|---|---|
| Annual Base Rental Rates: | $8 to $12 per square foot | Subject to condition of facility |
| Annual Operating Expenses: | $5 to $6 per square foot | Taxes, utilities, insurance, etc. |
| Lease Term: | 3 to 5 years | Possible termination rights |
| Parking Ratio: | 6 to 8 spaces/1,000 square feet | Negotiate as much as possible |
| Construction Schedule: | 30 to 60 days | Subject to condition of facility |
| Landlord Construction Allowance: | $10 to $20 per square foot | Landlord funded allowance |
| Tenant Construction Cost: | $0 per square foot | Landlord funds all upgrades |
| Furniture: | $250 per workstation | Replace chairs and parts |
| Cabling: | $250 per workstation | Replace old cabling |
| IT & Telephony Equipment: | $750 per workstation | Replace all equipment |
| Back-Up Generator: | $0 | Existing at facility |
Converting former retail space will require significant facility upgrades
As a result of the last recession, there is a glutton of former retail buildings that have been left vacant and are now available for use as a potential call center. These facilities typically have larger floor plates, an abundance of parking, and very good amenities nearby. They are usually your only option when considering smaller tertiary communities where minimal real estate exists. However, there is a significant amount of capital that is required to convert these facilities into truly functional call centers. Economic incentives provided by economic development organizations can help offset these costs but should not be relied on.
The following table summarizes the business terms for the conversion of former retail buildings:
| Item | Terms | Comments |
|---|---|---|
| Annual Base Rental Rates: | $4 to $5 per square foot | Delivered as-is condition |
| Annual Operating Expenses: | $5 to $6 per square foot | Taxes, utilities, insurance, etc. |
| Lease Term: | 7 to 10 years | Possible termination rights |
| Parking Ratio: | 7 to 10 spaces/1,000 square feet | Negotiate as much as possible |
| Construction Schedule: | 3 to 4 months | Includes design time |
| Landlord Construction Allowance: | $30 to $40 per square foot | Amortized over the lease term |
| Tenant Construction Cost: | $10 to $20 per square foot | Portion landlord will not fund |
| Furniture: | $1,000 per workstation | New workstation and chair |
| Cabling: | $250 per workstation | New cabling |
| IT & Telephony Equipment: | $750 per workstation | New equipment |
| Back-Up Generator: | $100,000 to $200,000 | Subject to size of generator |
Build-to-suits require a good balance sheet
As the demand for call center space has spiked, some call center companies are once again considering ground-up, build-to-suit facilities. Constructing a new facility designed specifically to meet the needs of a call center user will truly provide a superior image and environment for employees. Typically only well capitalized companies are able to build their own facilities due to the financial covenants often required by banks to finance these capital intensive projects. As a result, build-to-suits require longer-term leases and will typically attract the greatest amount of economic incentives.
The following table summarizes the business terms for a build-to-suit:
| Item | Terms | Comments |
|---|---|---|
| Annual Base Rental Rates: | $14 to $15 per square foot | Includes construction allowance |
| Annual Operating Expenses: | $5 to $6 per square foot | Taxes, utilities, insurance, etc. |
| Lease Term: | 10 to 15 years | No termination rights |
| Parking Ratio: | 8 to 10 spaces/1,000 square feet | Ample parking |
| Construction Schedule: | 8 to 12 months | Subject to site conditions |
| Landlord Construction Allowance: | Included in base rental rate | N/A |
| Tenant Construction Cost: | Included in base rental rate | N/A |
| Furniture: | $1,000 per workstation | New workstation and chair |
| Cabling: | $250 per workstation | New cabling |
| IT & Telephony Equipment: | $750 per workstation | New equipment |
| Back-Up Generator: | Included in base rental rate | N/A |
Conclusions
As the call center market continues to expand in the United States, the availability of quality call center facilities will diminish. It is critical to remember that real estate costs only account for 5% to 10% of a call center’s operating costs while labor costs will be more than 80%. As a result, it is critical to align your real estate strategies to your labor objectives to ensure you are making the optimal location decision for your business.
