Tech Drives Office Builds and TI Costs

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SAN FRANCISCO—With demand for new space and build-outs being driven by the expansion of the Bay Area’s tech economy, overall construction costs for commercial office buildings and tenant improvement projects will continue to rise through 2016 and perhaps as far out as 2020, according to JLL. The firm’s analysis of labor and materials data suggests that while the price of construction materials is likely to trend downward in 2016–the result of a relatively weak housing market and reduced demand from China–labor costs are likely to drive overall costs higher, especially in San Francisco which already has higher than average labor costs in the construction sector.

JLL research shows the rate of San Francisco’s office construction growth is the highest in the nation at 6% year-on-year and JLL is currently tracking more than 7.5 million square feet of office construction in San Francisco and Silicon Valley, a strong proportion of which is pre-leased. JLL estimates that average tenant improvement costs for tech or creative space are $175 to $200 per square foot versus just $100 to $125 per square foot for traditional class-A office space. Adding the bells and whistles necessary to differentiate the brand and create an exciting environment in which employees can work and be productive isn’t cheap.