JLL: Office Fit-Out Costs, Tenant Improvement Allowances Vary Widely

Office occupiers need to consider “fit-out” costs and tenant improvement allowances when selecting their office space–and both vary significantly from city to city–said JLL, Chicago.

Nationally, the cost to build out an office averages $196.49 per square foot, the JLL U.S. Fit Out Guide reported. But after taking into account the average landlord-provided tenant improvement allowance of $43.61 per square foot, the out-of-pocket cost for tenants averages just $152.88 per square foot, the report said. 

“More than 85 million square feet of U.S. office space leased last year will need some level of construction,” said JLL Americas President of Project and Development Services Todd Burns. He noted that the report looks at both fit-out costs and tenant improvement allowances to give office occupiers a better sense of their bottom line.

JLL called Silicon Valley, Calif. the most expensive market in the U.S. to build out an office with a $199.22 out-of-pocket cost. Surprisingly, Washington, D.C. represented the most affordable major market at $103.88 due to record-high concession packages from landlords desperate to get tenants into the growing amount of available space.

Mason Mularoni, Senior Research Analyst with JLL Project and Development Services, said the Pacific Northwest remains the most expensive region for office builds. Southern cities claimed six of the 10 most affordable markets. “However, due to the range of landlord-provided tenant improvement packages, some cities that made the top lists were pretty unexpected,” he said.

Though the Northwest topped the most expensive list, Seattle was surprisingly affordable for build-outs due to large tenant improvement allowances, Mularoni said: “Technology continues to be the primary driver of the city and significant growth is occurring from both local companies and tenants migrating from the Bay Area,” he said. ‘But due to the second-largest tenant improvement package average across the nation, Seattle holds down the seventh most affordable city.”

Los Angeles ranked as the sixth most affordable market to build out an office, Mularoni said. “L.A.’s enormous tenant improvement packages are tied with Washington, D.C. for largest in the nation, offering an affordable option in the notoriously expensive state of California,” he said, noting that new leasing activity in Los Angeles is driven by a convergence of media, technology and entertainment, “and the tech sector in particular has shown a preference for creative buildouts.”

Long Island ranked third, beating out its neighbor and the traditional frontrunner New York City on the list of most expensive build out markets, Mularoni noted. “When it comes to building costs alone, New York tops the list,” he said. “But substantial tenant improvement packages in the city allows Long Island to slide ahead in out-of-pocket costs, holding its own among the expensive northern California cities.”

Mularoni also noted that Detroit–once on the brink of financial collapse–is currently being reinvigorated by an eager tech community. “Startups, investors and outside firms are attracted to the city’s resolve to bounce back,” he said. “But Detroit isn’t in the clear just yet. In a ‘perfect storm’ of above-average build out costs and minimal tenant improvement packages, the city swings in as one of the top out-of-pocket cost markets.”