Building out a new office space can be overwhelming—not to mention costly—but can transform your entire organization if done correctly. Every office design decision from layout to the selection of materials and fixtures can impact your company’s bottom line and overall success. JLL’s newly released 2018 U.S. and Canada Office Fit Out Guide compares build out costs across three different office styles in 59 markets to give tenants a sense of how seemingly small choices can affect a fit out budget in a big way.
“Our clients are consistently coming to us with questions about how to get the most bang for their buck when it comes to office fit outs,” said Todd Burns, President, JLL Project and Development Services. “This guide allows us to share our business intelligence data to provide occupiers with benchmark costs to help them make informed real estate decisions.”
Which Space Option Is Best For You?
Today’s office environment is evolving in response to a dynamic workforce and shifting office needs. Successfully delivered office fit outs can increase productivity, attract high-value talent, impress clients, drive collaboration and achieve long-term success. However, office styles are no longer a one-size-fits-all. These three styles range in both floorplan and cost:
Progressive: Average cost to build – $152.23 per square foot
Progressive style offices are the fastest growing office category and feature an open office floorplan with 100 percent bench-style seating and no enclosed offices. Design heavily favors multi-use space and common areas for collaboration. Project budgets tend to be light on hard costs due to minimal dividing walls and private offices. However, progressive spaces typically have higher technology expenses due to more connected conference and collaboration areas.
Example tenants: Technology companies, start-ups, progressive corporate offices
Moderate: Average cost to build – $158.23 per square foot
The majority of current U.S. offices are built in a moderate style. These offices lean towards an agile floorplan with 10 percent of the space dedicated to enclosed offices and 90 percent open floorplan with reasonably sized workstations. Design also includes a healthy mix of conference rooms and two to four multi-use spaces throughout. Project budgets are comparably average on hard costs due to moderate use of dividing walls, but benefit from saving on open floorplan space. Not surprisingly, moderate styles offer a blend of benefits that come with both progressive and traditional spaces.
Example tenants: Semi-modern office users, corporate offices transitioning to more efficient models
Traditional: Average cost to build – $177.06 per square foot
Traditional office styles have a private office heavy floorplan with 30 percent enclosed offices and 70 percent open floorplan with large workstations and no bench seating. Design includes several traditional conference rooms and one collaboration space. Tenants can expect to maintain privacy but miss out on increased efficiency opportunities. Project budgets tend to have the highest build out costs as a result of costly private office furniture and high-walled workstations. However, tenant factors are comparatively small due to lessened need for common areas.
Example tenants: Law firms, traditional financial companies
Beyond office style, there are a handful of additional dynamics that can impact space design and overall cost. JLL’s Office Fit Out Matrix compares the above office styles with space quality and complexity to display how these decisions can influence the cost per square foot.
Space quality and complexity evaluates the physical design elements of an office and accounts for the quality of selected finishes and improvements, complexity of space upgrades and design work and amount of technology additions.
“A lot of people might not realize how the smallest decisions around things like lighting, fixtures and quality of materials used can add (or shave off) thousands of dollars,” said Burns. “In a progressive style space, for example, using high complexity elements can be an average of $66.10 more per-square-foot than using base complexity.”
State Of The Office Construction Market
Last year was a pivotal year for the construction sector and the office real estate industry. Construction costs rose three percent in 2017 and are expected to continue climbing in 2018 and beyond. Office leasing fundamentals are pivoting as new construction deliveries begin to outpace leasing demand. Tenant improvement allowances spiked nearly 10 percent in the latter half of 2017, outpacing rent growth.
Specific to the office fit out conversation, rising materials costs (+3.0 percent year-over-year) and construction labor rates (+3.4 percent year over) continue to affect project budgets. An uptick in labor wages is expected to endure through 2018 as the shortage of skilled construction labor persists. The current unemployment rate is 4.5 percent and job growth in the industry remains flat. Demand for construction and building materials will also remain strong as the industry pivots towards adaptive reuse, renovation and fit out projects in 2018.
To learn more about the state of the construction industry, download JLL’s year-end 2017 U.S. Construction Update.