JLL 2019 Office Cost Benchmarking Report: Are the Tides Turning Toward Tenants?
Tenant improvement allowances jump double digits, still trail construction costs
Tenant improvement (TIs) allowances have jumped by double digits in recent years, growing more than 10 percent in 2017 and 13 percent last year, according to JLL’s 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 fit out increased 12 percent in 2018. While about 60 percent of construction cost increases in 2018 were offset by increases in tenant improvement allowances, the remaining 40 percent were passed on to tenants.
“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,” said Todd Burns, President, JLL Project and Development Services. “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.
1. Progressive office style: average cost to build – $170 per-square-foot
In a recent survey of corporate occupiers in the U.S., 28 percent of respondents reported having progressive-style office space. Progressive style is an open office floor plan with 100 percent 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.
2. Moderate office style: average cost to build – $182 per-square-foot
By far the most common office design, 52 percent of corporate occupiers report having a moderate-style office space. Moderate office styles tend to have agile floorplans with enclosed offices representing 10 percent of the total square footage and an open floor plan the remaining 90 percent. 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.
3. Traditional office style: average cost to build – $196 per-square-foot
Today, 21 percent of offices fall squarely in the traditional style, in which 30 percent of floor space is dedicated to enclosed offices. The remaining 70 percent 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. 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.
“A goal of every new fit out should be maintaining the ability to change and upgrade within the existing space for years to come,” Burns said. “In doing so, a space can better meet the people, physical and financial needs of an organization over the long term.”
JLL Project and Development Services is a leader in the development, design, construction and branding of commercial real estate projects for the world’s most prominent corporations, educational institutions, public jurisdictions, healthcare organizations, industrial facilities, retailers, hotels, sports facilities and real estate owners. Ranked No. 2 in Building Design + Construction’s 2018 Construction Management Giants survey and No. 6 on Engineering News-Record’s 2018 list of Top 100 Construction Management-for-Fee Firms, JLL’s project management team comprises 6,000 project managers across 56 countries and is actively managing $45 billion under construction.
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JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. Our vision is to reimagine the world of real estate, creating rewarding opportunities and amazing spaces where people can achieve their ambitions. In doing so, we will build a better tomorrow for our clients, our people and our communities. JLL is a Fortune 500 company with annual revenue of $16.3 billion, operations in over 80 countries and a global workforce of over 90,000 as of December 31, 2018. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit jll.com