Cost Of Construction Fit Outs Tick Up Amid Rising Hard Costs, New Design Standards

Construction costs for office fit outs are up 23% this year, according to JLL’s latest office fit out guide released today. Hard costs have played the biggest role at an increase of more than 25 percent, while rising design standards have also played a role.

JLL benchmarked office fit out costs according to style (progressive, moderate, and traditional) and space quality and complexity (base, medium, and high).  Progressive fit outs involved efficient open-office floor plans with predominantly bench-style desk seating and few or no enclosed offices, and include a high ratio of small huddle rooms for privacy or small group collaboration, as well as a variety of collaboration and conference spaces.  Moderate spaces consist of agile floor plans composed mainly of workstations in an open setting, as well as a moderate number of private offices and a mix of medium-sized conference and collaboration spaces.  Traditional spaces, conversely, are private-office-heavy with a quarter to a third of the space dedicated to private offices.

Base spaces have a “simple and straightforward design on a minimal budget with a templatized feel,” according to JLL, with finishes and aesthetic design that are focused. Medium-quality spaces are projects of standard complexity with a few unique design features and some upgrades using average-quality finish materials. And high-quality projects are complex and custom with top-quality materials, finishes and technology.

Nationally, fit out costs for base spaces ranged from $194 psf for progressive spaces to $205 psf for moderate and $212 psf for traditional fit outs. Costs for medium-quality spaces ranged from $221 psf for progressive to $233 psf for moderate and $242 psf for traditional, while those costs were $257 psf, $275 psf, and $290 psf for high-quality projects, respectively. JLL says that the moderate stle, medium quality benchmark corresponds well to the needs of an average corporate user with a hybrid workforce, and for office users looking to transition their space away from more traditional floorplans, the “moderate style, high quality” cost benchmark may better reflect needs, the firm says.

When JLL released its prior Office Fit Out Guide in 2021 more than half of corporate employers surveyed said they expected employees to work from home at least two days a week. At that time, experts expected that long-term work from home would have implications on the total size of the office, “with the overall footprint expected to shrink due to an abandonment of the one-to-one ratio of dedicated desks to employees.”

But “while work from home remains an active part of many employees’ current work cadence, most office users have opted to retain a one-to-one desk ratio for employees, even as overall design has shifted toward more collaborative spaces and hoteling in more progressive and even moderate design patterns,” the report notes. “The rationale for this is complicated, indicating a lingering desire for a full-time return to office by corporate heads, complications scheduling a truly hybrid workforce or simply institutional inertia around such a fundamental change. While the ratio of desks to employees remains largely unchanged, there are nevertheless opportunities for space saving, with the per employee footprint reduced through smaller workstations and other configurations. Work from home will also continue to be an evolving part of most workers’ lives.”

JLL notes that the cost implications of this are fairly straightforward: “A more carefully designed and customized office that meets the needs of multiple overlapping users on any given day will cost more.” Hard costs will be higher, since less of the footprint consists of simple workstations, but the firm notes that some tenants may look for slightly smaller footprints since fewer employees will be using the office at a time.

“The right balance will depend on each company, but a reduced footprint could potentially offset a higher cost per square foot, leaving the total capital cost of a project unchanged,” the report notes. “Regardless of size, a mobility-focused office with a high ratio of flexible collaboration space will generally come at a higher cost per square foot, driven by the custom design, unique features and elevated technology needs. Expenses are notably higher this year however, with global availability and inflation driving costs up generally. Even more traditional office layouts need to contend with these issues, and the entire construction industry is acutely feeling the effects.”