If you want to know how to lease vacant office space, start with the size and finish of what you’re offering rather than the rent number. Aaron Strole, who founded Phoenix-based Capital Asset Management and runs property management across roughly 60 employees and a portfolio that spans retail, office, industrial and medical, says spaces at 7,000–8,000 square feet and below lease “pretty quickly” while a raw 15,000–20,000 square foot block sits.
The fix is mechanical: take the big vacancy, cut it into roughly 5,000 square foot suites, finish them so a tenant can move in without a build-out negotiation, and convert to medical only where the plumbing already exists.
Below: what a spec suite build actually includes, when medical conversion pencils, how to read office cap rates against industrial, why almost no new office or retail is being built, and the retention work that keeps the suites full once you’ve leased them.
Key takeaways
- Suites at roughly 7,000–8,000 sf and under lease quickly; a 15,000–20,000 sf space that still needs work is a hard lease at almost any price.
- A basic spec suite scope — pull old carpet, install vinyl plank, add new lighting, demise into ~5,000 sf units — buys lease velocity in exchange for upfront capital.
- Medical office conversion hinges on existing plumbing. Adding water where none exists can be very expensive, so screen your building’s infrastructure before pricing the play.
- New retail development needs roughly $45–55 per square foot in rent to work, and few tenants pay that. Almost nothing new is getting built in retail or office, so existing owners face little new competition.
- Tenant retention comes from communication and responsiveness, which means freeing managers from administrative work so they can be at the property.
From the Real Estate Pros Show
This article draws on an interview with Aaron Strole of Capital Asset Management on the Real Estate Pros Show, hosted by Scott Bursey.
Why Big Raw Office Suites Sit and Small Finished Ones Lease
The single most predictive variable in leasing vacant office space right now is suite size. Strole’s read from managing office across the Phoenix market: “We can lease space out around that, up to like that 7 to 8 or so thousand square feet pretty quickly.” At that size and below, his portfolio is highly occupied. Above it, with work still required, the story reverses.
That is why the subdivision play works. If you own a 10,000 or 20,000 square foot vacancy, you are fishing in the smallest tenant pool in the market — large users have the most options and the most leverage, and they will pick a Class A building because the flight to quality is real and it is where the occupancy gains are showing up. Demise that block into roughly 5,000 square foot suites and you are suddenly selling into the deepest part of the demand curve.
The arithmetic favors it even before you get to rent. Four 5,000 square foot suites give you four chances a quarter to lease something instead of one. They also give you shorter deal cycles, smaller tenant improvement allowances per transaction, and less exposure to a single tenant’s credit.
The mistake owners make is holding a large vacancy intact while waiting for the one big user who justifies the whole floor. In practice you’re paying carry on empty space to preserve optionality the market isn’t rewarding. As Strole puts it to clients: if you have that big 15,000 or 20,000 square foot space that needs some work, you’re going to have a hard time.
What Actually Goes Into a Spec Suite Build
The scope is less exotic than owners assume. Courtney Stern, one of Capital Asset Management’s portfolio managers overseeing office, runs a repeatable package: get rid of the old carpet, put in nice vinyl planking, make it very clean, add new lighting, and divide the space up so what was one large block becomes a 5,000 square foot suite.
The point of the finish work is not aesthetics for its own sake. It’s removing the decision the tenant doesn’t want to make. A prospect walking into a finished suite is evaluating rent and term. A prospect walking into a shell is evaluating rent, term, a construction schedule, a TI allowance negotiation, their own project management time, and the risk that none of it lands on schedule. Most small tenants — the ones actually signing leases at this size — will simply pick the building where that decision doesn’t exist.
Strole is direct about the tradeoff: it takes a little more investment, then you lease it up. That’s the deal. You spend capital before you have a signed lease, and what you’re buying is lease velocity and a shorter downtime period, not a higher face rent.
Two practical notes for underwriting it. First, price the spec suite build against the carry cost of the vacancy you’re currently paying, not against a hypothetical no-cost lease-up. Second, standardize the scope across suites so you can bid it once and repeat it — his managers have gotten good at this specifically because they run the same package repeatedly rather than custom-designing every vacancy.
Make that space ready. Tenants can just move in and they’re ready to go. But if you have that big 15,000, 20,000 square foot space that needs some work, you’re going to have a hard time.
— Aaron Strole, founder, Capital Asset Management (CAMCRE), Phoenix
When Converting Office to Medical Office Pencils
Medical office is hot right now, in Strole’s words, and it is the most common upgrade conversation he has with owners of traditional office. But the conversion has one gate, and it is plumbing.
Doctors’ suites need water. If the building already has that infrastructure in place, the conversion is a reasonable move on some or all of the space. If it doesn’t, adding it “can be very expensive” — expensive enough to change the answer. So the screen is simple and it happens before anything else: walk the building and find out what plumbing capacity you already have and where it is.
One building in his portfolio, 444, was more traditional office and is now about half medical. That’s the realistic shape of the play — not a wholesale repositioning, but converting the suites where the infrastructure supports it and leaving the rest as conventional office.
On the amenity side, Strole’s read is worth taking seriously because it separates what tours well from what tenants use. A shared conference room off the lobby delivers real value — it creates the wow factor as soon as someone walks in, and multiple small tenants genuinely use it because none of them can justify dedicated conference space in a 5,000 square foot suite.
Gyms are the opposite. Prospects ask whether the building has one, go look at it, check the box, and then mostly don’t use it. Having something there helps a tenant feel good about the building for their employees, but Strole would not weight it heavily in a capital plan against space that gets used daily.
Reading Cap Rates and Occupancy by Asset Class
Office cap rates are elevated for two stacked reasons, and only one of them is about office. Cap rates are driven by several things, interest rates chief among them — as rates rose, cap rates rose across the board regardless of what was happening at the property level. On top of that, a lot of buyers still see office as risky, and that perceived risk adds its own premium.
Strole’s view of what that means: “I do think there’s opportunity right now in office because so many people are afraid of it. And anytime you have people that are afraid to invest in something, that’s normally a great time to get in.” A buyer entering at today’s office cap rates has two potential tailwinds — the risk premium compressing as occupancy recovers, and the rate component compressing if rates come down.
He is explicit that this is a tradeoff, not a forecast. On timing: “That’s the magic question.” He thinks the shift has started, and he’s seeing his own office occupancy rise, concentrated in Class A. Nobody has the crystal ball.
Industrial reads differently, and understanding why is useful for pricing any asset class. Industrial cap rates are lower largely because the tenants are bigger and more stable and more likely to keep cash flowing — less risk, tighter rate. In Phoenix, the pressure on industrial has come from overdevelopment rather than demand collapse: everybody wanted to build industrial, absorption didn’t keep up with new deliveries, and only recently have new starts slowed. Occupancy is now beginning to recover.
Why New Supply Isn’t Coming and What That Means for Rents
The most durable advantage an existing office or retail owner has right now is that nobody can afford to compete with them by building new. Strole’s firm developed a retail center recently, and his number is that a new project needs rents in the range of $45 to $55 per square foot to work. Not many tenants are paying that.
The result is that very little new development is happening in retail or office. That has pushed occupancy up meaningfully in retail and created real stability, and rents are climbing every year because of it. Existing owners are insulated from new competition in a way they weren’t a development cycle ago.
For an owner with vacancy, this changes the calculus on spending capital. You are not improving space to beat a shiny new building down the street, because that building isn’t getting financed. You are improving space to beat the other existing buildings in your submarket — a much lower bar, and one that suite subdivision and a clean finish clears.
Strole attaches a real caveat, and it matters for underwriting rent growth. The small business owners leasing these spaces have to look at their sales and decide whether they can afford a higher rent. There is a limit to how much annual escalation the tenant base can absorb. Right now the alternative for many of those tenants is having nowhere to move, since occupancy across most buildings is high and there’s no new product — but that dynamic depends on tenant sales holding up.
Tenant Retention Comes From Time, Not Amenities
Strole’s number one driver of tenant retention is communication and the relationship with the tenant — being at the property, meeting with tenants, and being responsive when something goes wrong. Which sounds soft until you look at how his firm actually created the capacity to do it.
His managers produce a monthly reporting package for clients: 50 to 60 pages, around 20 separate reports covering the rent roll, tenant activity, renewals, everything an owner needs to make decisions. That package used to be assembled by hand — pull the income statement, pull the rent roll, compile. They rebuilt it as a scheduled report. Now it generates with one click in minutes, and the time goes into reviewing it for quality rather than producing it.
The point isn’t the report. It’s that talented people were spending their hours on administrative assembly instead of on the property. Strip out the manual work and the same headcount is now walking suites, catching problems early, and answering tenant questions the same day. That is what renews leases.
Strole’s closing warning is the one he repeats most: the biggest mistake owners make is not investing in the asset they already have because they’re chasing the next one. He sees the same pattern in association management, where a board of three to five owners keeps costs down year after year — deferring roofs, modern paint, curb appeal — while the properties they own get harder to lease and harder to sell. Reinvesting in the asset you hold is the move.
Frequently asked questions
What size office suite leases fastest in today’s market?
Suites at roughly 7,000 to 8,000 square feet and below lease fastest. Aaron Strole’s Phoenix office portfolio runs high occupancy at that size band, and his firm frequently demises larger vacancies down to around 5,000 square feet to hit it.
The reason is tenant pool depth. There are far more prospects in the market for 5,000 square feet than for 20,000, and small tenants move faster because their decision is simpler.
How much does it cost to convert traditional office space to medical office?
It depends almost entirely on plumbing. If the building already has water infrastructure serving the space, the conversion is manageable. If it doesn’t, Strole says adding it can be very expensive — enough to kill the deal.
Before you price anything else, confirm what plumbing capacity exists and where. In his portfolio, one building went from traditional office to roughly half medical because the infrastructure was already partly in place.
Why are office cap rates higher than industrial cap rates right now?
Two reasons stack. Industrial tends to have bigger, more stable tenants that are more likely to keep cash flowing, so the perceived risk — and therefore the cap rate — is lower. Office still carries a risk premium because many investors remain wary of it.
Interest rates push both up. Strole’s read is that the fear premium in office creates opportunity for buyers willing to underwrite it, though he’s clear that timing the shift is guesswork.
What rent per square foot does new retail development need to pencil?
Roughly $45 to $55 per square foot, based on Strole’s experience developing a retail center recently. Very few tenants are paying rents at that level.
That gap is why almost no new retail or office is being built. For existing owners it means rising occupancy, annual rent increases, and no new competing product coming online.
What’s the most common mistake commercial owners make with an underperforming building?
Chasing the next acquisition instead of reinvesting in the asset they already own. Strole names this as the biggest mistake he sees, and he sees a version of it in association management too, where cost-conscious boards defer roofs, paint and curb appeal until the property is hard to lease and hard to sell.
The bottom line
Walk your largest vacancy this week and price two things: what it costs to demise it into 5,000 square foot suites with new flooring and lighting, and what the plumbing situation would allow if a medical user showed up. Those two numbers tell you whether you have a pricing problem or a product problem — and in office right now, it’s usually the second.
