Office Buildout Costs
4 Things You Need to Know Before Signing a Lease
Whenever you find a location for your company, it’s usually not ready for move in. Most spaces will need some type of buildout, especially if you want to a high performance workplace that will increase employee productivity and morale, strengthen company culture, hire and retain top talent, and brand your company to clients.
1. The process
It’s important to know what you’re involved in to plan accordingly, before getting into the details, especially if you have a set move out date. Tenant overstay fees add up quickly if you don’t plan far enough in advance for relocation, buildout and move in.
- Tenant finds an office space that requires a buildout.
- Office design begins (space requirements, blueprints, etc.) and a clear cost estimate is made. The design phase can take up to 4 months.
- Negotiating with the landlord to nail down a per square foot budget. The buildout will either be turnkey, where the landlord handles everything, or a tenant improvement (TI) allowance, where the tenant handles everything with financial support from the landlord.
- Hiring a contractor and getting 2-3 proposals with detailed itemization of the projected costs should take around 1 month. If it’s a turnkey buildout, the landlord will find a contractor, and if it’s a TI allowance, the tenant finds one.
- Buildout construction begins, which can take a few months depending on the scope of the project.
- Project management. A turnkey buildout means the landlord’s property manager takes the lead, but if it’s a TI allowance buildout, the tenant hires their own project manager.
- Move in!
2. Average office buildout cost
In a recent study, Washington, DC (Regalmark’s stomping grounds) surprisingly was the most affordable market at $103 per square foot (out of pocket, but including TI allowance). The national average was $152. This study based its findings on the higher end of office buildouts, but it’s a good starting reference.
- New ten-year lease
- Class A central business district office building
- 2nd generation warm lit shell space
- 20k – 30k square feet lease
- Midpoint scope fit out costs
Chances are your company does not fall under these high end requirements, so below are some more realistic ballpark numbers.
Average Buildout Costs for Smaller Workplaces with Shorter Leases
(around 10,000 sq. ft and a lease of 5 years or less)
|New Building||2nd Gen A/B +||2nd Gen B-/C|
Keep in mind that buildout costs can vary dramatically based on:
- Region and location. The Northeast and West Coast have always been the most expensive regions while the southern states have remained the least expensive. The closer you get to cities, the more expensive per square foot.
- Level of improvements. The quality of furnishings are usually categorized by standard, midpoint, or high end/high finish. (Find out how to choose the right furniture for your workplace.)
- Scope of work. Mainly how much square footage and furnishing you need. For example, if a lounge or break room is part of your plan.
- Type of labor. Union labor can double the cost.
- Building class. A (above average), B (average) and C (below average). See below for more detail.
- Type of office. Standard professional office, medical office, law office, labs, etc.
- Landlord negotiations. Always get 2-3 construction bids and nail down what the landlord is going to pay before signing a lease.
3. Who pays?
Your landlord might pay for all, some or none of the office build out depending on what you want and your negotiating power. In general, your landlord will only contribute to a standard buildout, so before signing any contract, make sure you know all costs up front and what the landlord is willing to pay.
Negotiating power is based on:
- Length of lease
- Level of improvements you want (standard, midpoint, high finish)
- Turnkey buildout vs. tenant improvement (TI) allowance
- Landlord’s perception of your company’s financial strength
Length of lease
A 12 month lease doesn’t give you much leverage, so you’ll probably be given a office space as is, and any improvements will be out of pocket.
Longer leases (3-5 years, 5-10 years) usually allows you to negotiate with the landlord to pay most or all standard level improvements.
If the landlord won’t give any TI allowance, then try to negotiate free rent or rent reduction to offset buildout costs.
Level of Improvements
Landlords If you want higher end furnishings, the landlord will probably only pay a portion, and the rest out of pocket.
Turnkey vs. Tenant Improvement
Like stated before, turnkey buildouts is when the landlord handles everything, and the only thing the tenant has to do is turn the key and walk into the office when it’s finished. The negative to this is the landlord can easily cut corners to save money on anything from choosing the cheapest carpet to hiring a low end contractor who might do shotty work. Turnkey is generally recommended for spaces that are less than 10,000 square feet. If you don’t mind a standard professional office layout with walls and cubicles, turnkey should be fine.
Tenant improvement (TI) allowances is when the tenant handles everything, and the landlord pays for all or some of the buildout. This usually involves hiring a project manager and being involved in hiring a contractor. TI is generally recommended for spaces that are more than 10,000 square feet. If you value corporate culture and employee satisfaction, and want a next generation office for example, TI is a must so you can design every aspect of the workplace to fit your business goals.
Your Company’s Financial Strength
Most companies fail, so landlords start off with the upper hand. The landlord’s perception can be influenced by everything from what you wear, the size of space you’re looking at, the company website, type of business, and any information you provide that may or may not increase your negotiation strength. For example, if you had $1 million in sales last year, it wouldn’t hurt bringing that up in conversation. If you almost went bankrupt last year, there isn’t much benefit from mentioning that.
4. The types of office buildout spaces
1st Generation (also known as a shell): a space that has never been occupied before and you probably will see only a concrete floor
2nd Generation: a space that has been previously occupied and built out. If the space doesn’t match your business needs, like the number of offices or meeting rooms for example, the landlord should be able to add or remove them to your desired number.
- Class A: Most prestigious buildings competing for premier office users with rents above average for the area. Buildings have high quality standard finishes, state of the art systems, exceptional accessibility and a definite market presence.
- Class B: Buildings competing for a wide range of users with rents in the average range for the area. Building finishes are fair to good for the area. Building finishes are fair to good for the area and systems are adequate, but the building does not compete with Class A at the same price.
- Class C: Buildings competing for tenants requiring functional space at rents below the average for the area.
Free Office Space Plan & Interior Layout
Activity Based Workspace Design
* Free office layout plan if we receive a CAD file your office floor plan. Without one, we would need to travel to your offices for a site survey.
If you feel as if Activity Based Working is the direction your business wants to takes. Contact the Regalmark Team and we will help you with every step of the way!
Senior Business Manager