by Brianna Crandall — May 1, 2017 — Creating an office space that attracts top talent and exceeds employees’ workplace expectations is critical in achieving a company’s business ambitions. But first, they must face the complex task of selecting a location that not only matches their culture, but fits their budget. In order to demystify the impact a specific city has on the cost to build out an office, global specialized real estate services and investment management firm JLL has released its first U.S. Fit Out Guide. This report is a powerful tool that combines fit-out costs and tenant improvement (TI) allowances to paint a comprehensive picture of what companies can expect to pay, out of pocket, for an office build-out across the nation.
According to Todd Burns, Americas president, JLL Project and Development Services:
More than 85 million square feet of U.S. office space leased last year will need some level of construction. Our one-of-a-kind guide looks at build out costs, and takes it a step further by adding the tenant improvement piece of the puzzle. By layering on market specific allowances, it gives our clients unique business intelligence to help them make impactful location decisions.
How do the regions stack up?
Nationally, the average cost to build out an office is $196.49 per square foot. But after taking into account the average landlord-provided tenant improvement (TI) allowance of $43.61 per square foot, the out-of-pocket cost for tenants is $152.88 per square foot. Coming out on top as the most expensive market to build out an office is Silicon Valley, California, with an out-of-pocket cost of $199.22. The most affordable market? Washington, DC, at $103.88.
Mason Mularoni, senior research analyst, JLL Project and Development Services, commented:
It’s no surprise that the Northwest continues to be the most expensive region for office builds. Similarly, as we predicted, the southern cities claimed six out of the ten most affordable markets. However, due to the range of landlord-provided TI packages, some cities that made the top lists were pretty unexpected.
Five cities with surprising office build-out costs
Washington DC: most affordable
Often topping most-expensive lists, the District of Columbia is officially the most inexpensive market to build out an office space. As the federal government, contractors and law firms continue to consolidate, slightly below-average build-out costs are offset by record-high concession packages from landlords that are desperate to get tenants into the growing amount of available space.
Detroit: 8th most expensive
Once on the brink of financial collapse, the Motor City is being reinvigorated by an eager tech community. Startups, investors and outside firms are attracted to the city’s resolve to bounce back. But Detroit isn’t in the clear just yet. In a perfect storm of above average office build-out costs and minimal TI packages, the city swings in as one of the top out-of-pocket cost markets.
Los Angeles: 6th most affordable
What might come as a surprise to many, this California city lands at 6th least expensive market to build out an office. New leasing activity has been driven by the convergence of media, technology and entertainment, and the tech sector in particular has shown a preference for creative build-outs. LA’s enormous TI packages are tied with Washington, DC, for largest in the nation, offering an affordable option in the notoriously expensive state of California.
Long Island: 3rd most expensive
What makes this suburb’s 3rd place spot notable is that it beats out traditional frontrunner, New York City, on the list of most expensive markets. When it comes to building costs alone, New York tops the list. But substantial TI packages in the city allows Long Island to slide ahead in out-of-pocket costs, holding its own among the expensive northern California cities.
Seattle: 7th most affordable
Although the northwest region overall tops the most expensive list, Seattle can be seen as the exception to the rule. Technology continues to be the primary driver of the city, and significant growth is occurring from both local companies, as well as tenants migrating from the Bay Area. But due to the second-largest TI package average across the nation, Seattle holds down the 7th most affordable city.
The U.S. Fit Out Guide is built off of nearly 2,500 JLL project budgets and over 2,100 JLL lease transactions in 51 U.S. markets. The guide shows what a tenant can expect to pay, all in, to build out a new office space. While many factors can affect the final budget, the data gives a market-by-market average of unique cost elements.
JLL Project and Development Services provides development, design, construction and branding of commercial real estate projects for prominent corporations, educational institutions, public jurisdictions, healthcare organizations, industrial facilities, retailers, hotels and real estate owners around the world. The highly ranked project management team comprises 4,895 project managers across 51 countries.