June 5, 2017
“The brain is a wonderful organ; it starts working the moment you get up in the morning and does not stop until you get into the office.” – Robert Frost
Poet Robert Frost might have changed his opinion of the office if he had been writing those words today in Silicon Valley, San Francisco or Seattle. Tech-dominated markets in the Pacific Northwest have some of the greatest examples of “cool, creative space” of any markets in the country. Here’s a perfect example from the new Stitch Fix Headquarters office remodel in San Francisco pictured below:
Photo credit: Connie Zhou
The battle to recruit and retain talent has done much to fuel this creativity among employers in all parts of the country, but demand for such space is so high in Northern California it has led to some of the highest office remodeling costs in the country. A shortage of labor, along with rising design and materials costs are major contributors to the rise in overall spending for these improvements.
According to JLL’s U.S. Fit Out Guide for 2017, Silicon Valley ($199.22) and Sacramento ($198.24) have the highest total out-of-pocket tenant costs per square foot of anywhere in the nation. San Francisco ($192.13) is not far behind, its total out-of-pocket office remodel costs defrayed by the fact that average tenant improvement packages are around $45 per square foot versus $30 in the Valley and just $17.50 in Sacramento.
Generous tenant improvement packages lower out-of-pocket costs in some markets
Other Northern California markets such as Oakland ($164.74) and the North Bay ($177.63) also have higher tenant improvement packages from landlords, but nothing in the Northwest region tops Seattle, where average $70 per square foot tenant improvement packages brought total out-of-pocket office remodel costs for tenants down to a region-leading $133.12. Total out-of-pocket office remodel costs in Portland average $151.84, making it the second cheapest market in the region after Seattle. That said, JLL is seeing instances of $100+ tenant improvement allowances for turnkey build to attract tenants to what may be less desirable buildings or those in need of major remodeling in the San Francisco market.
Not surprisingly, given these local market numbers, the Pacific Northwest is also the most expensive region in the country for an office remodel. Total out-of-pocket office remodel tenant costs for the Northwest region topped $173.84 per square foot. That amount is $4 higher than equivalent projects in the Northeast, including New York City. Nationally, the Mid-Atlantic has the lowest out-of-pocket office remodel tenant costs at $128.15 per square foot.
How to mitigate costs
There’s a number of ways you can make sure office remodel costs don’t overshoot the already high numbers we are seeing in Northern California and the Pacific Northwest markets today. Here’s a few of the most important:
- Engage with a project manager early to coordinate comprehensive due diligence during the site selection phase to unearth any potential ‘skeletons in the closet’.
- Negotiate with the landlord to ensure they provide the most favorable tenant improvement packages based on the condition of the space and ensure the “work letter language” in the lease protects you — the tenant — from any hidden costs.
- Work with your project manager, architect and contractor to identify the project goals and constraints early. This will help to keep the overall office remodel project on time and on budget.
- Technology — audio-visual, security and information technology — is also a big cost factor. Hiring an experienced consultant to identify reasonable audio-visual and information technology solutions can help bring down overall tenant improvement costs.
One more thing
Finally, something else for you to consider if you’re planning an office remodel: creative space recycles well, so looking at second generation creative space – which might not need as much construction – could be a good, cost effective option. The same applies to sublease space, though high demand can make these spaces hard to come by.
I lead tenant representation for JLL’s Project and Construction Management business in San Francisco, leading a team that oversees large commercial tenant improvement office remodel projects in the downtown San Francisco central business district and the greater Bay Area. I specialize in high end and highly technical build outs with significant audio-visual, information technology and mechanical/electrical/plumbing coordination. My group and I personally oversee an annual average of over $100M in project volume. I hold a LEED AP BD+C specialty certification.
Contact me directly at +1 (415) 395-4935 or via email at firstname.lastname@example.org.
As a Vice President and strategic advisor, I lead JLL’s project and construction management services for the Northwest office sector. For almost 7 years, I’ve helped transform the spaces where people work, helping companies realize and achieve their broader ambitions and business goals. From office remodel consulting and capital management through design and construction, I bring a life cycle perspective to every project.
Contact me directly at +1 (415) 407-6169 or via email at email@example.com.