Geopolitical Headwinds, Labor Constraints Reshape Office Fit-Out Costs, JLL Reports

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The cost of building a modern office has been “structurally reset,” with average fit-out costs now approaches $300 per square foot for a medium-quality space, according to JLL, Chicago.

The firm sampled 50 cities across the U.S. and Canada for its Fit-Out Costs Guide 2026. It found “hunger for quality” in a supply-constrained market.

“The demand for higher quality space is intensifying just as the supply of premium office space is shrinking,” the report said. “Office availability has now fallen for an unprecedented seven consecutive quarters in the U.S., while the construction pipeline remains at historic lows. As a result, occupiers are competing for a limited pool of high-quality existing space, making strategic renovation and fit-outs the primary pathway to securing the AI-ready, talent-attracting environments they need.”

JLL said technology is the new standard for a competitive office, with previously premium offerings like integrated building systems and advanced AV now considered “baseline” requirements. “This new standard is clearly reflected in project budgets,” the report said. “Mechanical and Electrical services now account for 29% of a typical fit-out, with Security, IT, and AV representing another 10%. Combined, these technology-related systems make up nearly 40% of total costs.”

Compounding the costs of this technical demand, the report identified several persistent structural factors driving a challenging cost environment: Trade and tariff policies continue to impact the cost of construction materials, while global energy instability affects supply chains. Structural labor shortages also creating scarcity in the technically skilled trades most relevant to building out today’s complex, AI-ready workplaces.

“Clients who are holding out for costs to come down before committing to a project are taking a real risk,” noted Louis Molinini, head of project and development services at JLL. “The structural pressures–labor, trade, technical complexity–are not going to unwind on a timeline that favors waiting. The primary way occupiers compete for talent right now is through the quality of their space, and the bar for what that means has moved up considerably.”

In this environment, the report cautioned that a ‘wait-and-see’ approach carries significant risk. JLL’s analysis found that trade and labor cost impacts are expected to compound faster than any anticipated relief from interest rates. “Organizations that act decisively now to invest in high-performance space, ahead of policy relief, will be better positioned to manage costs, avoid further escalation risk, and secure a long-term competitive advantage,” the report said.

Fit-out costs across the U.S. and Canada move in the same direction but not at the same speed, JLL noted. New York anchors the high end of the cost spectrum, with San Francisco and Boston close behind. While mid-range markets like Chicago and Seattle are more competitive than the coastal gateways, the Sun Belt markets, including Dallas and Atlanta, represent the most competitive end of the spectrum, supported by larger and more flexible labor pools that have absorbed the current cycle’s cost pressures more readily.