by King White, on Jun 23, 2015 10:40:00 AM
Two main questions often come up during the call center site selection process: How much will it cost, and how long will it take to set up a new call center? The quick answer is that it will cost between $2,500 and $10,000 per workstation to set up a fully functional call center facility and require about three to 12 months to be operational.
To provide a more accurate estimation, Site Selection Group has established benchmarks based on the completion of more than 500 new call center projects to help companies budget for their next call center facility. This article provides a summary of costs to set up a new call center in the United States based on three scenarios — a vacated call center, a retail conversion and a build-to-suit.
Vacated call centers offer the lowest costs and quickest occupancy
As the economy has taken off in the U.S., the availability of quality vacated call centers across the country has become more challenging as the good sites have been taken and the closure rate has declined. There are currently more than 860 vacated call centers available across the United States, according to Site Selection Group’s research.
These previously occupied call center facilities typically require the least amount of up-front capital and less time to become operational. Because the condition of these facilities will vary greatly, it is critical to be aware of hidden costs such as insufficient mechanical/electrical systems or other deficiencies that can’t be identified when touring the site. It’s also important to understand why the call center facility closed. Was there a labor problem or is the market saturated? The following table provides a summary of expenses and terms to expect for a vacated call center facility:
| Terms | Comments | |
|---|---|---|
| Annual Base Rental Rates: | $10 to $14 per square foot | Subject to condition of facility |
| Annual Operating Expenses: | $5 to $6 per square foot | Taxes, utilities, insurance, maintenance, janitorial |
| Lease Term: | 5 years | Possible early termination rights in 3rd year |
| Parking Ratio: | 6 to 8 spaces per 1,000 square feet | Negotiate as much as possible |
| Construction Schedule: | 30 to 90 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 |
Tightening real estate market prompts call center conversions
The economic recovery has put a strain on the availability of real estate — especially in high growth markets. The office, industrial and retail sectors are in high gear, which has triggered a slew of speculative construction across the U.S. As a result, companies often have no alternative but to convert a building into a call center. A significant amount of capital is required to convert a facility into a truly functional call center. Economic incentives provided by economic development organizations can help offset these costs but should not be relied on. The following table summarizes the costs and terms for the conversion of former retail space or a shell building:
| Terms | Comments | |
|---|---|---|
| Annual Base Rental Rates: | $6 to $8 per square foot | Delivered in shell 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 per 1,000 square feet | Negotiate as much as possible |
| Construction Schedule: | 3 to 5 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 credit-worthy tenant
As the demand for call center space spikes, some call center companies are once again considering ground-up, build-to-suit facilities. Building a new facility designed specifically to meet the needs of a call center user will 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 costs and terms for a build-to-suit:
| Terms | Comments | |
|---|---|---|
| Annual Base Rental Rates: | $14 to $16 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 per 1,000 square feet | Ample parking |
| Construction Schedule: | 9 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 U.S. call center market continues to grow, the limited supply of call center facilities in good labor markets will create the need for more conversions and build-to-suits. 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.
