by Brianna Crandall — April 22, 2019 — A new build-out guide from global specialized real estate services and investment management firm JLL helps building owners, tenants and facilities managers (FM) make informed real estate decisions. Business intelligence and research from over 3,600 projects highlights the driving forces behind rising build-out costs and helps FMs benchmark the real cost to build out their office space across 59 US and Canadian cities. The guide also takes an in-depth look at local office trends and helps organizations determine which office style might be best for their business, and how they should adapt spaces to meet today’s changing demands.
Tenant improvement (TIs) allowances have jumped by double digits in recent years, growing more than 10% in 2017 and 13% last year, according to JLL’s 2019 U.S. and Canada Fit Out Guide. With 2019 slated to be the fourth year in a row with more than 50 million square feet of new office completions nationally, JLL research shows concessions in most markets are likely to be even greater this year.
Still, generous tenant improvement allowances haven’t kept up with construction cost growth. The average cost of an office build-out increased 12% in 2018. While about 60% of construction cost increases in 2018 were offset by increases in tenant improvement allowances, the remaining 40% were passed on to tenants.
Todd Burns, president, JLL Project and Development Services, stated:
The cost of construction continues to rise, and the number of open jobs in this country is at near-historic levels. As companies battle it out in the war for talent, they need to be cognizant of the impact an office environment has on recruitment and retention. Choosing the right office style means real bottom-line impact.
“Efficiency” is about more than just density
It is more important than ever for tenants to create the most efficient space to meet their needs. But efficiency is not just about density. It also means selecting the right office style and finish level, so a space can support and improve an organization for years to come. This guide aims to help users meet that challenge, all while providing real-world cost data to tie concepts back to reality.
- Progressive office style: average cost to build — $170 per-square-foot
In a recent survey of corporate occupiers in the US, 28% of respondents reported having progressive-style office space. Progressive style is an open office floor plan with 100% of the desk space outfitted as bench-style furniture. This design also heavily favors collaborative multiuse spaces and common areas. Progressive-style tenants can expect to gain higher employee collaboration and efficiencies in both space and equipment use. Project budgets tend to be light on hard costs due to minimal dividing walls but have higher technology spends due to tech requirements for collaborative, multiuse and common areas.
- Moderate office style: average cost to build — $182 per-square-foot
By far the most common office design, 52% of corporate occupiers report having a moderate-style office space. Moderate office styles tend to have agile floorplans with enclosed offices representing 10% of the total square footage and an open floor plan the remaining 90%. Project budgets tend to be comparatively middle-of-the-road on hard costs due to moderate use of dividing walls and enclosed private offices. Moderate-style office tenants can expect to gain a blend of the benefits — collaboration and privacy — that come with a balance of open and private offices.
- Traditional office style: average cost to build — $196 per-square-foot
Today, 21% of offices fall squarely in the traditional style, in which 30% of floor space is dedicated to enclosed offices. The remaining 70% is an open floor plan with relatively large workspaces and high partitions. Compared to other styles, traditional office designs have the lowest employee density and tend to have the highest cost-per-square-foot of hard costs. Tenants will preserve employee privacy but miss opportunities for increased collaboration and efficiency.
Adaptability is the long-term answer
As of only a few years ago, most tenants leased space for seven to 10 years and did not make updates over the course of their lease after the initial interior build-out. As business strategies in other industries — such as consumer electronics and fashion — emphasize iterative releases and constant development, tenants today are increasingly looking to update their space every few years.
Burns continued:
A goal of every new fit-out should be maintaining the ability to change and upgrade within the existing space for years to come. In doing so, a space can better meet the people, physical and financial needs of an organization over the long term.
The 2019 U.S. and Canada Fit Out Guide is available to download from the JLL website upon brief registration.
JLL Project and Development Services provides development, design, construction and branding of commercial real estate projects for prominent corporations, educational institutions, public jurisdictions, health-care organizations, industrial facilities, retailers, hotels, sports facilities and real estate owners around the world. The top-ranking project management team comprises 6,000 project managers across 56 countries.
