The true cost of building your office is not as high as you think

Building out your new office may not be as expensive as you think. Tenant improvement allowances can cut office fit out costs by up to $85 per square foot.

June 15, 2017

Tenant improvement allowances can cut office fit out costs by up to $85 per square foot.

After selecting the perfect location for your office that’s within your rental budget, you’re faced with the growing costs of outfitting your new space. From design, architecture, construction, furniture, fixtures, IT implementation and more—the average cost to build out an office is $196.49 per square foot.

This figure varies across the U.S. where construction labor is tight and office development is in high demand. That’s why comparing construction costs regionally is so important to your real estate strategy. Particularly if you have offices in more than one location, or are evaluating where to expand.

However, looking at construction costs alone will lead you astray. For the true cost of a build-out, you should be looking at tenant improvement (TI) allowances too.

Most landlords provide TI packages to put toward the cost of building out your space, especially now that more tenants want an office that’s tailored to them. They’ll usually offer a small portion of construction costs, but in some cities, tenants receive enough to offset their bill considerably.

San Francisco, for example, has the second highest fit out costs at $237.13 per square foot, but with tenant-friendly TI allowances averaging $45, it drops to the fourth most expensive spot to build.

When you start looking at tenant improvement allowances, geography can greatly affect your bottom line.

Looking at 2,469 of our own project budgets spanning 51 local markets and 17 industries, we found the 10 most and least expensive cities to build an office when you factor in TI allowances.

Office build out costs across U.S. markets

Washington DC is least expensive: The District of Columbia comes in as the least expensive market for overall fit outs in 2017. Slightly below average build-out costs are offset substantially by large concession packages that are leading the national average.

New York landlords are generous: New York construction costs top $244 per square foot, making it the most expensive city to build in. But landlords are vying for tenants with sizable TI allowances (around $65), dropping this market down to 5th place for highest out-of-pocket spending.

Detroit is on the rise: In a perfect storm of above-average fit out costs and minimal TI packages, Detroit swings in as one with the highest out-of-pocket expense, beating out Chicago costs by $0.43 per square foot.

Los Angeles breaks from West Coast expense: In a surprise to many, Los Angeles is the 6th least expensive city to build a new office. Enormous TI packages top $85 in the metropolis (tied with DC for the largest in the nation), proving there’s an affordable option in notoriously expensive California.

Your dollar goes further in the South: In a strong showing of force, six of the ten most affordable markets in the U.S. exist in the South – further proof that affordable labor and materials in the region can greatly affect your office fit out bottom line. Houston sits at second place and the flourishing city of Atlanta steps in as the 5th most affordable market, pairing southern affordability with TI allowances nearly 25% higher than the national average, at $52.50 per square foot.

Being an educated tenant in 2017 is more important than ever. The construction and development industry saw a record year in 2016, with 2.7% growth in construction costs across the United States. 2017 is expected to follow suit, and conditions will only become more favorable for landlords.

As workplace trends continue to shift and the world of work evolves, it will be more important for companies to select a location and build a space to suit their people. Understanding your true fit out costs by applying tenant improvement allowances to construction costs can help point you in the right direction.