North America Fit-Out Cost Guide 2019/2020 Edition

NORTH AMERICA FIT-OUT COST GUIDE 2019/20 Edition

CONTENTS 2 FOREWORD

45

COST INDEX

3 METHODOLOGY

49

FACILITIES MANAGEMENT

5

COMMERCIAL OFFICE OVERVIEW & TRENDS

53

MARKET INSIGHTS

7

COST ANALYSIS

59

KEY CONTACTS

21

MARKET SUMMARIES

1

NORTH AMERICA FIT-OUT COST GUIDE

FOREWORD Welcome to the 2019/20 Fit-Out Cost Guide, the publication that remains the most comprehensive analysis of office fit-out pricing and market summaries across North America.

Since its inception in 2013, this guide has sought to answer commonly asked questions around cost data, market trends and technology. The North American FitOut Cost Guide spans all sectors and portfolio strategies leveraging CBRE's Project Management expertise across the United States and Canada. Building on the quantity and quality of our data, our guide serves as a powerful tool to help with early stage capital planning, verify third-party estimates and normalize in-house benchmarking.

We’ve added a commercial office overview and trends section that identifies key cost pressures and what the future holds for the coming year.

In addition, we are also excited to partner with our Facilities Management team this year to offer regional opex benchmarking.

Although capital costs still remain the focus of the guide, we recognize our readers' need to better understand the full lifecycle of costs, including typical operating expenses.

See page 51 for more information.

Lastly, the market insight section highlights two important topics gaining momentum as we move into 2020—principal contracting and cost segregation. As our industry evolves, CBRE remains dedicated to providing best-in-class value and awareness on behalf of the industry we serve.

I would like to express my gratitude to those who contributed to this year’s Fit-Out Cost Guide. We hope the guide continues to be a relevant and insightful resource. Please note that costs displayed are for guidance only.

For specific project or budget information, please reach out to myself or your local CBRE Project Management team. Thank you for your continued interest in our work.

Chris Smith, MRICS Practice Leader, Cost Consultancy North America +1 480 375 1225 Christopher.Smith2@cbre.com

MATTHEW EASTWOOD Head of EMEA Projects CBRE Global Workplace Solutions, EMEA

CBRE PROJECT MANAGEMENT

2

METHODOLOGY

3.3K+ licensed Kahua users glabally

$16B+ of approved project budgets for all project types

24K+ projects of all types saved in Kahua

3

For the second consecutive year, we leveraged our technology platform, Kahua, as our primary data resource.

With Kahua, we are able to pull real-time cost data, with instant access to the billions of dollars of capital spend managed by CBRE for clients across North America. As more clients use Kahua, our ability to provide market insights and data analysis will expand significantly.

Kahua is changing the way that capital assets are delivered and managed. As the world’s leading collaborative network for real estate and construction project management, Kahua delivers a secure, scalable Application Platform as a Service (aPaaS). This customizable, webbased technology solution (available on all devices, including mobile) is the most intuitive, configurable and user-friendly project management solution on the market. Additionally, Kahua’s multi-layered security strategy ensures project data is safely shared with the right people. The manageable interface, file management and advanced reporting capability improves collaboration between all members of the project team, providing enhancements to the quality of project deliverables and improved efficiency to manage and track all aspects of project delivery.

NORTH AMERICA FIT-OUT COST GUIDE

© Tanner Bacik

SCOPE SPECIFICATION LEVELS We categorize project spend into three general categories: low, medium and high. This sub-categorization generates a cost range corresponding to the varying specification levels built by CBRE clients across all sectors. Certain sectors—particularly technology—have recently aligned to the higher end of the specification level. The "fit and finish" of an office dictates where on the cost spectrum the project should be budgeted.

This year we adopted the Kahua Work Breakdown Structure (WBS). While previous editions of our guide and its cost components are maintainted, items such as audio-visual (AV) are now included in the technology category and fees are shown within the professional fees category (previously listed as soft costs).

H

G

HI

LO W

MEDIUM On page 21, the market summaries provide a full cost breakdown of 11 major market cost categories making up the total project.

Figure 1: Total Project Cost Categories Professional Fees • Covers all professional consultants required to design, construct and deliver the project • Includes: architect, engineer, cost consultant, project management and specialty consultants

Construction • Covers all physical construction trades (CSI Divisions), contractor fees, supervision, insurance and permits • Includes: demolition, structural modifications, internal finishes, window treatments, mechanical systems, electrical and fire systems

Furniture, Fixtures & Equipment (FF&E) • Covers all items provided by furniture vendors • Includes: loose and system furniture, signage, wayfinding and artwork

Technology • Covers all technology systems, IT cabling, security and AV • Includes: structured cabling, security systems, CCTV, access controls and AV systems • Excludes: IT equipment (typically client-procured direct)

Relocation • Covers office moves and change management • Includes: box and IT moves, change management and move planning services

CBRE PROJECT MANAGEMENT

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COMMERCIAL OFFICE OVERVIEW & TRENDS The demand for office fit-outs remains strong with no sign of slowing. In a landscape rife with challenges including labor shortages, wage hikes and trade tariffs, uncertainties are being passed to owners in the form of elevated costs.

In markets across North America, there has been a steady increase in construction costs over the past few years. Robust market activity has led to extended project schedules, owners having to value engineer or re-design and even delays in project start dates due to lack of contractors willing to bid.

COST OF CONSTRUCTION The trade war is continuing with repercussions on construction material costs, driving uncertainties in overall costs. Because of this, there is reluctance from contractors to sign GMPs early in the design phase, and in many cases, it is leading them to instead switch to the design-build model to allow for material substitution if needed.

Labor shortage is still an issue among North America, seeing an increase of 7% in 2019. Companies are investing more in benefits, training and the wellbeing of their employees in order to increase retention rates.

ECONOMIC OUTLOOK Moody's Economy forecasts that in 2020 there will be a 4.5% increase in the volume of office work, providing a steady and optimistic outlook for the coming year. Recent reductions in interest rates by the federal reserve should have a positive impact on stimulating the market. A strong economy in recent years has led to an increase in local and state taxes.

Although this increase should lead to increased public spending, the private sector— specifically the retail sector—has shown signs of decline with negative forecasts for 2020.

TECHNOLOGY Construction technology continues to grow significantly. The rise in construction technology (contech) and real estate technology (proptech) point to an increase in the adoption of smart technologies. Owners and contractors across the country continue to invest in innovative ways to counter challenges around the shortages of skilled labor and the rising cost of construction.

Figure 2: Annual Comparable Industry Cost Increases

ANTICIPATED U.S. GDP GROWTH (2019-21)

CONSTRUCTION WORKER HOURLY WAGE INCREASE (2018-19)

2.0%

3.0%

AVERAGE NATIONAL COST INCREASE

3-4%

5

NORTH AMERICA FIT-OUT COST GUIDE

COMPARABLE INDUSTRY METRICS

ANTICIPATED ANNUAL OFFICE DEVELOPMENT INCREASE (2019-20)

4.5%

CONSTRUCTION MATERIAL COST INCREASE IN 2019

3.5%

© Gensler/Michael Townsend | Design by Gensler Chicago

CBRE PROJECT MANAGEMENT

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COST ANALYSIS

7

NORTH AMERICA FIT-OUT COST GUIDE

© Gensler/Ryan Gobuty

CBRE PROJECT MANAGEMENT

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TOTAL PROJECT COST MARKET PRESSURES AND LABOR SHORTAGES ACROSS THE NATION CONTINUE TO INCREASE AVERAGE PRICES 3 TO 4% PER YEAR. Key markets such as San Francisco, New York and Seattle report experiencing aboveaverage escalation, all above 5.5%. There is also strong growth across the board with stand-out locations including Phoenix (6%), Nashville (6%) and Toronto (5%).

steel mill products and asphalt paving mixtures escalated 27%, 18% and 12% respectively in 2019. Across the industry, the price of materials has risen over 5% year over year.

Organizations across all sectors are finding it difficult to attract talent, as employees increase their expectations of the workplace to provide a sense of creativity, collaboration and technology. This shift increases the cost of fitting out an office.

Over the next 12 months, we anticipate contractors will continue to pass these cost spikes to owners and occupiers, while the unpredictable nature of the tariffs may lead to an increase in their cost and contingency. Major markets may experience a 4 to 6% escalation with an average nation-wide escalation closer to 3.5%.

Cost pressures remain a major contributor to annual escalation. With inventories of goods purchased prior to the tariffs depleting, contractors are facing higher costs due to rising material costs and ongoing uncertainty.

In particular, commodities such as diesel fuel,

Mega-projects can have a major impact on a region, contributing to labor shortages and wage increases. Mega projects, defined as projects greater than $1 billion in value, tend to create a push-pull effect in the construction industry. These colossal construction

endeavors create employment opportunities, enhance local infrastructure, and generate a general buzz within their local markets that can lead to additional development demand. However, some negative sideeffects include a shortage of skilled labor in a single market, making it harder to get vendors - in particular, general contractors - to pursue smaller or less-profiled projects.

Job security associated with larger projects often lead to labor shortages and wage hikes.

Example regions include Seattle (Microsoft Campus) and Los Angeles (LAX Modernization and the Rams/Chargers Stadium).

Figure 3: Average Total Project Cost Per RSF

G HI H

$224.06

LO W

$152.94

MEDIUM

$90.76

9

NORTH AMERICA FIT-OUT COST GUIDE

Š Gensler/Ryan Gobuty

NOTE

Figure 4: Average Total Project Cost by City CITY

LOW

MEDIUM

HIGH

Atlanta, GA

$78

$139

$241

Baltimore, MD

$82

$145

$238

Boston, MA

$98

$153

$291

Charleston, SC

$75

$112

$163

Charlotte, NC

$83

$115

$198

Chicago, IL

$105

$202

$275

Cleveland, OH

$70

$122

$168

Columbus, OH

$64

$133

$170

Dallas, TX

$83

$124

$199

Detroit, MI

$91

$121

$191

Houston, TX

$73

$115

$176

Indianapolis, IN

$83

$125

$200

Kansas City, MO

$81

$117

$189

Los Angeles, CA

$96

$179

$280

Miami, FL

$65

$118

$202

Minneapolis, MN

$95

$117

$228

Nashville, TN

$71

$119

$211

New York, NY

$145

$245

$323

Newark, NJ

$88

$160

$270

Oakland, CA

$85

$147

$273

Orlando, FL

$84

$122

$183

Philadelphia, PA

$96

$147

$253

Phoenix, AZ

$74

$117

$167

Portland, OR

$95

$134

$235

Sacramento, CA

$84

$140

$220

Salt Lake City, UT

$73

$124

$180

San Diego, CA

$80

$151

$230

San Francisco, CA

$134

$222

$333

San Jose, CA

$108

$161

$302

Seattle, WA

$130

$216

$298

St. Louis, MO

$86

$123

$193

Tampa, FL

$69

$114

$179

Toronto, ON

$85

$124

$229

Tulsa, OK

$78

$93

$167

Vancouver, BC

$99

$141

$180

Vancouver, WA

$89

$142

$184

Washington, DC

$99

$146

$247

All project costs throughout this report are provided as a cost per rentable square foot (RSF).

Rentable square feet includes all usable areas plus the applicable floor and building common areas. The calculation of rentable square feet varies by city and is very market-driven.

Differences in the load factor should be considered when making a direct comparison against different markets.

CBRE PROJECT MANAGEMENT

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PROFESSIONAL FEES CONSULTANTS SPANNING DESIGN, COST AND PROJECT MANAGEMENT ARE KEY SERVICES IN SUCCESSFULLY DELIVERING A PROJECT FROM INCEPTION TO CLOSE-OUT. Professional fees account for between 6 and 12% of the total project spend and cover all architectural and engineering design, project management, cost consultancy and specialty consultants (acoustic, LEED, etc).

Professional fees are often represented as a percentage of construction cost, in which case the ratio would range between 10 and 20% of construction cost.

Owners who can leverage a single, repeatable design standard (minimizing design iteration) are able to mitigate costs

effectively, whereas organizations frequently rolling out new workplace standards experience projects with multiple re-designs with a less efficient design process due to the changing project requirements.

Architectural services are the largest portion of professional fees. According to the American Institute of Architects (AIA), architecture firms and the demand for their services remain strong in 2019, as demonstrated by the average design backlog pipeline of approximately six months. This backlog is the highest since 2010.

The AIA, as part of its Architectural Billings Index survey, identified three examples of the impact of recently implemented material tariffs: • 99% of architectural firms saw costs rise in the last 12 months.

• 58% of architectural firms have been pressured by contractors to modify materials selected.

• 43% of architectural firms have witnessed clients requesting modified project designs to accommodate changing costs and availability of materials.

Figure 5: Average Professional Fees Per RSF

H

G

HI

$17.36

LO W

$11.10

MEDIUM

$6.15

11

NORTH AMERICA FIT-OUT COST GUIDE

© Gensler/Ryan Gobuty

NOTE

Figure 6: Average Professional Fees by City CITY

LOW

MEDIUM

HIGH

Atlanta, GA

$4.00

$8.25

$16.90

Baltimore, MD

$5.40

$10.11

$14.09

Boston, MA

$6.48

$12.47

$19.95

Charleston, SC

$5.50

$8.45

$9.47

Charlotte, NC

$3.39

$7.71

$13.62

Chicago, IL

$4.22

$14.29

$17.93

Cleveland, OH

$6.31

$8.61

$10.34

Columbus, OH

$6.78

$8.58

$9.65

Dallas, TX

$3.49

$5.60

$18.34

Detroit, MI

$5.14

$6.47

$10.29

Houston, TX

$5.37

$10.48

$13.04

Indianapolis, IN

$6.78

$9.32

$16.76

Kansas City, MO

$6.61

$5.77

$15.15

Los Angeles, CA

$7.00

$11.02

$17.76

Miami, FL

$5.59

$7.72

$14.36

Minneapolis, MN

$5.44

$8.61

$14.47

Nashville, TN

$4.89

$6.41

$13.59

New York, NY

$9.49

$16.97

$24.46

Newark, NJ

$7.85

$12.07

$23.52

Oakland, CA

$3.63

$7.79

$13.95

Orlando, FL

$3.85

$5.07

$12.01

Philadelphia, PA

$8.14

$12.44

$18.59

Phoenix, AZ

$2.95

$5.10

$9.89

Portland, OR

$8.54

$10.49

$17.70

Sacramento, CA

$4.46

$5.45

$11.03

Salt Lake City, UT

$5.08

$12.89

$16.76

San Diego, CA

$5.71

$9.77

$12.89

San Francisco, CA

$10.08

$15.05

$24.20

San Jose, CA

$7.40

$12.47

$20.04

Seattle, WA

$6.62

$13.00

$20.76

St. Louis, MO

$4.53

$5.85

$13.65

Tampa, FL

$5.80

$9.89

$14.60

Toronto, ON

$7.19

$10.94

$15.82

Tulsa, OK

$3.95

$5.20

$9.24

Vancouver, BC

$4.52

$8.66

$13.46

Vancouver, WA

$7.43

$11.57

$15.50

Washington, DC

$6.41

$11.22

$17.23

Costs can vary dependent on project complexity, market familiarity, size, and scope of services.

Clients taking advantage of repeatable design specifications (often set as global workplace standards) can mitigate the premium associated with a single design, resulting in more cost-effective professional fees.

In addition, portfolios sitting under central management often take advantage of shared services and resources, driving costs down due to the efficiency in being able to manage an entire portfolio or region.

Please be aware that professional fees do not include any transactionrelated costs (commissions, insurances, legal fees, etc).

CBRE PROJECT MANAGEMENT

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CONSTRUCTION CONSTRUCTION COSTS ACCOUNT FOR BETWEEN 50 AND 70% OF THE TOTAL PROJECT SPEND, MAKING IT THE SINGLE LARGEST CATEGORY. INTERNAL FINISHES AND MECHANICAL/ELECTRICAL ARE TYPICALLY THE TWO LARGEST AREAS OF CONSTRUCTION SPEND DICTATED BY THE DESIGN SPECIFICATION. Labor shortages continue to be felt across the country. Lack of skilled and unskilled labor can lead to price increases but can also reduce the number of vendors willing to bid on projects. According to data from the Bureau of Labor Statistics, the construction labor force is projected to grow by 12% through 2026, significantly above the average growth rate of 7% for all occupations.

Construction wages generally grow by 3% on average across the country year over year.

While many industry sectors have seen construction volumes decrease, the commercial office market remains strong.

The Associated Builders and Contractors report states that spending on non-residential construction climbed 4.4% since 2018.

reduce project time and cost. Venture capital investment in private contech has surged from just over $350 million in 2016, to over $6 billion in 2018 and growing further in 2019.

Popular technologies including drones, robotics and 3-D printing, aim to create efficiencies in construction ultimately leading to cost savings.

Given the impact of trade tariffs, labor shortages, and wage increases there continues to be major investments in contech, particularly as organizations seek new ways to

Figure 7: Average Construction Cost Per RSF

H

G

HI

$139.45

LO W

$89.54

MEDIUM

$54.32

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NORTH AMERICA FIT-OUT COST GUIDE

© Gensler/Ryan Gobuty

NOTE

Figure 8: Average Construction Cost by City CITY

LOW

MEDIUM

HIGH

Atlanta, GA

$51

$84

$146

Baltimore, MD

$48

$99

$157

Boston, MA

$55

$94

$190

Charleston, SC

$49

$49

$84

Charlotte, NC

$54

$63

$119

Chicago, IL

$71

$127

$175

Cleveland, OH

$37

$76

$95

Columbus, OH

$30

$79

$93

Dallas, TX

$58

$75

$120

Detroit, MI

$51

$72

$116

Houston, TX

$41

$71

$101

Indianapolis, IN

$50

$69

$120

Kansas City, MO

$53

$69

$107

Los Angeles, CA

$55

$116

$195

Miami, FL

$38

$67

$121

Minneapolis, MN

$56

$65

$152

Nashville, TN

$45

$77

$135

New York, NY

$95

$167

$208

Newark, NJ

$38

$94

$180

Oakland, CA

$62

$101

$186

Orlando, FL

$50

$67

$109

Philadelphia, PA

$61

$85

$161

Phoenix, AZ

$51

$71

$100

Portland, OR

$60

$83

$153

Sacramento, CA

$58

$99

$160

Salt Lake City, UT

$44

$66

$92

San Diego, CA

$49

$99

$159

San Francisco, CA

$89

$157

$208

San Jose, CA

$64

$106

$204

Seattle, WA

$90

$156

$199

St. Louis, MO

$59

$81

$117

Tampa, FL

$48

$64

$105

Toronto, ON

$54

$84

$152

Tulsa, OK

$54

$63

$118

Vancouver, BC

$67

$89

$114

Vancouver, WA

$58

$92

$118

Washington, DC

$63

$83

$149

Construction costs are impacted by many variables, from buildingspecific requirements to existing conditions or scheduling demands.

Factors impacting cost include: • Fast-track scheduling • Site access for freight and deliveries • Long-lead planning and import of materials • Landlord requirements and existing conditions • Phased construction including swing space • Shared and/or communal space upgrades • Structural works • Works required by code • Sustainability and certifications Additionally, supply chain and delivery models can impact the total cost of construction; early engagement from strategic vendors can identify cost efficiencies or incorporate preconstruction value engineering to consider alternative materials and techniques before work starts on site.

CBRE PROJECT MANAGEMENT

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FURNITURE, FIXTURES & EQUIPMENT (FF&E) FF&E COVERS ALL LOOSE FURNITURE, SYSTEMS FURNITURE, SIGNAGE, BRANDING AND ARTWORK AND IS THE SECOND-LARGEST SPEND CATEGORY BEHIND CONSTRUCTION, CONTRIBUTING BETWEEN 20 TO 30% OF THE TOTAL PROJECT COST. Mid and high-level projects are more likely to incorporate specifications that enable greater mobility and variety, including ergonomic furniture, sit-stand desks or treadmill desks.

Conference and meeting room costs can vary depending on the quality of tables and chairs.

The use of premium materials, integrated table technology, fabric type and even casters on a conference room chair affect costs.

Furniture costs are driven by two main areas; the specification and requirement of the end-user and how the furniture is procured. It's important to understand how the supply chain is leveraged during bidding to develop discount agreements, tiered pricing and turnkey solutions. In-turn, this knowledge can help drive significant cost savings without compromising quality.

CBRE offers a specialty service that will walk you through the entire furniture bidding and buying process so that you don't spend any more or less than you need to. For more information on Furniture Advisory Services, contact Julie.Deignan@cbre.com. (See page 59 for additional contact information.)

Figure 9: Average FF&E Cost Per RSF

H

G

HI

$45.12

LO W

$34.39

MEDIUM

$19.34

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NORTH AMERICA FIT-OUT COST GUIDE

© Gensler/Ryan Gobuty

NOTE

Figure 10: Average FF&E Cost by City CITY

LOW

MEDIUM

HIGH

Atlanta, GA

$16.61

$31.09

$51.54

Baltimore, MD

$17.90

$22.21

$45.60

Boston, MA

$27.16

$35.29

$56.06

Charleston, SC

$12.87

$39.50

$49.19

Charlotte, NC

$17.07

$29.91

$44.61

Chicago, IL

$22.51

$44.09

$57.51

Cleveland, OH

$17.91

$22.25

$42.86

Columbus, OH

$17.45

$27.56

$44.13

Dallas, TX

$14.41

$31.25

$44.38

Detroit, MI

$26.69

$29.02

$46.90

Houston, TX

$18.39

$21.99

$41.38

Indianapolis, IN

$19.66

$32.69

$44.60

Kansas City, MO

$14.99

$28.97

$48.96

Los Angeles, CA

$24.00

$35.79

$46.82

Miami, FL

$15.15

$32.71

$49.17

Minneapolis, MN

$23.90

$30.85

$45.43

Nashville, TN

$13.30

$24.57

$44.60

New York, NY

$28.42

$42.99

$60.31

Newark, NJ

$30.07

$37.64

$43.78

Oakland, CA

$13.60

$25.41

$50.07

Orlando, FL

$20.47

$35.99

$43.58

Philadelphia, PA

$16.95

$34.25

$48.08

Phoenix, AZ

$13.02

$30.58

$40.93

Portland, OR

$16.36

$27.07

$42.79

Sacramento, CA

$14.09

$25.40

$32.09

Salt Lake City, UT

$17.01

$32.56

$53.29

San Diego, CA

$17.83

$27.91

$39.99

San Francisco, CA

$23.98

$33.46

$68.77

San Jose, CA

$24.16

$25.56

$54.33

Seattle, WA

$21.00

$29.51

$51.00

St. Louis, MO

$16.94

$28.02

$47.29

Tampa, FL

$9.67

$28.14

$41.25

Toronto, ON

$14.62

$17.24

$40.49

Tulsa, OK

$12.03

$14.63

$26.15

Vancouver, BC

$20.09

$30.30

$37.66

Vancouver, WA

$15.57

$24.55

$32.43

Washington, DC

$20.29

$37.67

$55.75

FF&E costs are highly dependent on aesthetics, material selections, space layout, and the way people interact. Costs are also impacted by freight, delivery and installation on top of the pure product cost.

How furniture is procured also has a significant impact. Owners purchasing large volumes of furniture each year can negotiate substantial discounting with manufacturers. Taking a strategic approach to furniture sourcing can generate significant upside in terms of cost transparency and savings.

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TECHNOLOGY TECHNOLOGY ACCOUNTS FOR BETWEEN 6 TO 12% OF TOTAL PROJECT COSTS AND COVERS LOW VOLTAGE STRUCTURED CABLING, SECURITY AND AUDIO-VISUAL SYSTEMS (AV).

As organizations seek to enhance their workplace experience, technology has become a top priority and plays a major role in workplace agility. Technologies such as wireless connectivity (often supplemented with a backup wired system) are implemented to enable flexibility in how and where users can work.

In traditional office environments, AV may be limited to main conference and large-use multi-purpose rooms. As more owners move

toward an agile work environment, there will be an increase in AV investments related to the installation of wireless presentation systems and teleconference facilities. These technologies aren't only used in main meeting spaces but also in huddle and smaller informal collaborative spaces. For example, investment in the high specification category may include features such as video walls in reception, lobby or elevator areas.

Security system costs are driven by two key factors, electronic access control and video surveillance (CCTV). Considerations that impact cost typically include compliance regulations, access to high-security rooms, existing landlord systems and deployment methodology. In addition, there has been an increase in the ‘smart building’ approach which links all building data to a central monitored system for both efficiency and preventative safety precautions.

Figure 11: Average Technology Cost by RSF

H

G

HI

$20.11

LO W

$16.08

MEDIUM

$9.61

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NORTH AMERICA FIT-OUT COST GUIDE

© Gensler/Ryan Gobuty

NOTE

Figure 12: Average Technology Cost by City CITY

LOW

MEDIUM

HIGH

Atlanta, GA

$5.64

$14.85

$22.64

Baltimore, MD

$10.09

$11.94

$19.57

Boston, MA

$8.93

$10.15

$21.79

Charleston, SC

$6.99

$13.37

$18.35

Charlotte, NC

$7.84

$12.00

$18.46

Chicago, IL

$6.37

$14.71

$21.43

Cleveland, OH

$7.65

$13.68

$18.92

Columbus, OH

$8.13

$16.96

$21.40

Dallas, TX

$5.81

$10.87

$14.13

Detroit, MI

$7.69

$11.99

$15.52

Houston, TX

$7.08

$10.59

$19.03

Indianapolis, IN

$5.77

$12.81

$16.55

Kansas City, MO

$6.20

$12.09

$17.16

Los Angeles, CA

$8.89

$14.60

$19.03

Miami, FL

$5.58

$9.70

$16.32

Minneapolis, MN

$8.93

$11.05

$14.67

Nashville, TN

$7.23

$9.97

$16.11

New York, NY

$10.72

$15.87

$27.04

Newark, NJ

$11.29

$15.89

$19.33

Oakland, CA

$4.98

$11.41

$20.82

Orlando, FL

$8.65

$12.64

$16.27

Philadelphia, PA

$9.09

$13.80

$22.02

Phoenix, AZ

$5.84

$10.14

$15.18

Portland, OR

$8.85

$12.32

$18.56

Sacramento, CA

$5.48

$8.10

$14.33

Salt Lake City, UT

$6.10

$11.61

$16.73

San Diego, CA

$6.52

$12.17

$15.33

San Francisco, CA

$8.56

$15.00

$27.75

San Jose, CA

$10.92

$14.95

$21.16

Seattle, WA

$12.00

$15.52

$24.00

St. Louis, MO

$5.60

$7.74

$14.43

Tampa, FL

$5.25

$10.99

$16.70

Toronto, ON

$8.34

$10.68

$19.82

Tulsa, OK

$7.17

$8.98

$12.57

Vancouver, BC

$6.40

$10.15

$12.84

Vancouver, WA

$8.04

$12.26

$16.34

Washington, DC

$8.28

$13.33

$21.91

Technology costs (IT, security and AV) are highly dependent on the user experience, and will vary significantly between traditional and agile office spaces.

Technology plays a huge role in working styles and practices. Certain sectors are likely to invest more heavily in technology than others.

Please note that technology does not include the physical IT equipment such as desktops, phones, laptop computers, etc. These are typically owner-budgeted items.

CBRE PROJECT MANAGEMENT

18

RELOCATION EFFECTIVE MOVE MANAGEMENT AND BUSINESS TRANSITION IS KEY TO MINIMIZING DISRUPTION AND ENSURING BUSINESS CONTINUITY AT THE END OF A PROJECT. Relocation costs typically account for 1 to 2% of the total project cost. Key components of this category include both the front-end planning to determine key activities and timelines for a move, plus the physical move and coordination required for both people and IT. CBRE breaks down a relocation into three phases: 1. Initiation: This phase includes all major kick-offs, department operations questionnaires, relocation charters and budgeting.

2. Planning: This phase includes relocation scheduling, move communications and technology management.

3. Execution: This final phase includes establishing the move database, physical move RFP, labels, signage, physical move prep, logistics plan implementation, move instructions and welcome communications.

It's important to foster a positive move environment and experience by minimizing downtime and reducing stress associated with the entire process. In addition, many owners

and occupiers are seeking ways to re-use, repurpose or properly dispose of furniture and loose items in a socially and environmentally friendly manner. All of these items will lead to a successful and positive move experience.

CBRE offers a specialty service that will walk you through the entire relocation process. For more information on Business Transition and Move Management, contact Eric.Stang@cbre.com. (See page 59 for additional contact information.)

Figure 13: Average Relocation Cost Per RSF

H

G

HI

$2.01

LO W

$1.84

MEDIUM

$1.34

19

NORTH AMERICA FIT-OUT COST GUIDE

Š Gensler/Ryan Gobuty

NOTE

Figure 14: Average Relocation Cost by City CITY

LOW

MEDIUM

HIGH

Atlanta, GA

$0.91

$1.11

$3.24

Baltimore, MD

$0.55

$0.94

$1.63

Boston, MA

$0.66

$1.14

$3.26

Charleston, SC

$0.98

$1.03

$1.59

Charlotte, NC

$0.71

$2.10

$2.15

Chicago, IL

$1.20

$2.24

$2.80

Cleveland, OH

$0.91

$1.06

$1.14

Columbus, OH

$0.88

$1.02

$1.26

Dallas, TX

$0.75

$0.95

$1.95

Detroit, MI

$0.82

$1.46

$1.90

Houston, TX

$0.98

$1.00

$1.54

Indianapolis, IN

$0.86

$1.26

$1.72

Kansas City, MO

$0.91

$1.23

$1.34

Los Angeles, CA

$1.29

$1.32

$2.00

Miami, FL

$0.86

$1.09

$1.21

Minneapolis, MN

$0.77

$1.08

$1.47

Nashville, TN

$0.75

$1.24

$1.72

New York, NY

$1.82

$2.14

$3.92

Newark, NJ

$1.04

$0.78

$2.98

Oakland, CA

$1.05

$1.41

$2.10

Orlando, FL

$1.11

$1.47

$1.72

Philadelphia, PA

$1.24

$1.62

$3.20

Phoenix, AZ

$0.68

$0.78

$1.45

Portland, OR

$0.87

$1.58

$2.38

Sacramento, CA

$1.43

$1.69

$2.05

Salt Lake City, UT

$0.88

$1.04

$1.24

San Diego, CA

$1.57

$2.19

$2.59

San Francisco, CA

$1.77

$2.11

$4.26

San Jose, CA

$1.11

$1.93

$2.34

Seattle, WA

$1.03

$2.39

$3.40

St. Louis, MO

$0.55

$1.03

$1.23

Tampa, FL

$0.66

$1.01

$1.15

Toronto, ON

$0.62

$0.81

$1.02

Tulsa, OK

$0.55

$0.98

$1.12

Vancouver, BC

$1.63

$2.04

$2.16

Vancouver, WA

$0.77

$1.13

$1.53

Washington, DC

$0.90

$1.17

$3.06

Move costs can vary significantly if the end-user is being relocated from the same floor or same building versus a completely different location.

The exact scope of services provided within the relocation can also vary, including services such as archiving, employee orientation and training.

Using a trusted move manager and support team can ensure adequate planning, early preparation and can mitigate lastminute uncertainty or changes.

CBRE PROJECT MANAGEMENT

20

MARKET SUMMARIES

21

NORTH AMERICA FIT-OUT COST GUIDE

© Gensler/Ryan Gobuty

CBRE PROJECT MANAGEMENT

22

ATLANTA, GA Last year parts of Georgia felt up to a 15% increase in construction build-out costs for corporate office space and plan to see an additional ~5% increase in 2019/2020.

The Atlanta market seems to be continuing the momentum from 2018 with no signs of slowing down. Construction costs aren’t rising as quickly as they did in 2018 and the rate at which costs had increased seem be slowing. In 2018, we saw up to a 15% increase in construction buildout costs for corporate office space. We plan to see cost only increase by ~5% in 2019/2020.

Tenants are activily trying to reduce their real estate footprint and maximize their porfolio while also exploring the open workplace environment.

Atlanta has embraced the concept of an open office environment in order to increase collaboration and provide a more agile workplace for employees. Work-life balance and technology are driving the new office space revolution.

Technology is growing rapidly in Atlanta. Tech firms are in demand for good talent although good talent is hard to find. Atlanta unemployment is currently at 3.40% (as of 5/30/2019), as compared to 4.10% last year. With the high demand of jobs, talent is relocating to Atlanta and, luckily, infrastructure supports this population growth.

MARKET PRESSURES LEVEL OF ACTIVITY Low

High

MATERIAL COST INCREASE Low

COST

LOW

MEDIUM

HIGH

Professional Fees

$4

$8

$17

Construction

$51

$84

$146

FF&E

$71

$31

$52

Technology

$6

$15

$23

Relocation

$0.91

$1.11

$3.24

High

TOTAL COST PER RSF

LABOR SHORTAGE Low

High

WAGE FLUCTUATIONS

H

NORTH AMERICA FIT-OUT COST GUIDE

High

G HI

23

Low

$78

$139

MEDIUM

There has been upward pressure on wages as they continue to increase. This growth drives a lot of the price increases seen in 2019.

There is an increased pressure based on the regulations for local jurisdictions to meet code requirements. Landlords and building owners are being required to upgrade facilities to be more sustainable and energy efficient in order to meet code requirements.

In the future, we might see tenant improvement budgets continue to grow based on client’s needs and the inflation in the market. Three major trends could impact construction prices: tenant needs for new technology, labor and commodity prices.

COST BREAKDOWN

LO W

MARKET OUTLOOK

$241

“As building assets in the market continue to trade, demand for upgraded refresh efforts, and expanded tenant amenities grows. We show value in providing creative methods to deliver quality cost competitive designs and renovations to attract and keep tenants.

We continue to illustrate that our vision can net tangible positive returns to our clients.�

- Mark Wilde, Director, Project Management

CBRE PROJECT MANAGEMENT

24

CHICAGO, IL Over the last few years, the Chicago market has remained hot due to tech initiatives, smart developments and last mile delivery industrial space development.

Development remains steady in Chicago among the commercial, multi-family and residential industries. Existing buildings are feeling pressure to renovate more frequently as opposed to previous years due to the rise in new construction. Owners and occupiers are increasing their renovation budgets in order to offer tenants more amenities and improve public space.

Tenants are not only focused on offering enhanced amenities, but improving the employee experience and wellness. Due to this management shift, we have seen a rise in outdoor space renovation and development. Although the employee office space footprint has decreased over the years, the use of collaboration spaces, team areas and multi-use spaces have increased.

MARKET PRESSURES

The renovation and redevelopment rise will continue but will be less focused on new construction and more on the flexibility of space. There will be more furniture driven solutions focused on providing a multitude of options when transforming space for current and future needs. The construction industry will focus less on the space itself and more on the furniture and its flexibility within that space.

Low

High

MATERIAL COST INCREASE Low

LOW

MEDIUM

HIGH

Professional Fees

$4

$14

$18

Construction

$71

$127

$175

FF&E

$23

$44

$58

Technology

$6

$15

$21

Relocation

$1.20

$2.24

$2.80

High

TOTAL COST PER RSF

LABOR SHORTAGE Low

High

WAGE FLUCTUATIONS

H

NORTH AMERICA FIT-OUT COST GUIDE

LEVEL OF ACTIVITY

COST

G HI

25

High

$105

$202

MEDIUM

Development of industrial space is on the rise within Chicago city limits due to pressures to provide last mile delivery. There will be an increase in converting warehouse space into cold storage along with the stacking of buildings to solve for potential issues in land availability.

Low

COST BREAKDOWN

LO W

MARKET OUTLOOK

$275

“Over the last 21 years, 2018 proved to be the best year ever for the Chicago construction industry. 2019 is trending to be an even better year. We continue to see steady growth in all sectors with a strong focus on decommissioning services as we move away from outdated office equipment and furniture.�

- Abram Gamboa, Managing Director, Project Management

CBRE PROJECT MANAGEMENT

26

DALLAS, TX Project volume is consistent with on-going expansions and renovations along with new projects on the horizon for 2019 and beyond.

The Dallas-Fort Worth market continues to remain strong in 2019, especially in the corporate interiors sector. We’ve seen an increase in larger and more robust projects, ranging from approximately 250,000 square feet and higher. The developer market continues to provide adequate programable space especially around multi-level and high-rises.

There is an increase in office projects within the tech and law firm sectors. We are seeing that architectural and workplace solutions are evolving based on trends surrounding current needs, its effect on business, opportunities for multi-functional space, growth potential, culture, retention and space optimization.

Owners and tenants are focused on long-term leases and the right-sizing of their space. This shift will help draw the right workforce to the area and aim to increase retention rates in the market.

One thing to track are big-box retailers. With the boom of e-commerce in 2018 and 2019, big-box retailers have seen a significant downturn. We’ve seen smaller retailers try to grow their industrial space to meet the e-commerce needs of their customers and the industry as a whole.

MARKET PRESSURES

Resources are limited as the demand for projects increase. Labor and material shortages pose a new challenge as new projects continue to pop-up. The construction industry is extremely volatile and we continue to see employee retention rates decrease.

Low

High

MATERIAL COST INCREASE Low

LOW

MEDIUM

HIGH

Professional Fees

$3

$6

$18

Construction

$58

$75

$120

FF&E

$14

$31

$44

Technology

$6

$11

$14

Relocation

$0.75

$0.95

$1.95

High

TOTAL COST PER RSF

LABOR SHORTAGE Low

High

WAGE FLUCTUATIONS

H

NORTH AMERICA FIT-OUT COST GUIDE

LEVEL OF ACTIVITY

COST

G HI

27

High

$83

$124

MEDIUM

There are no indicators that GDP will change significantly. Growth should remain strong as Texas legislation launch incentives to encourage development and invite companies to relocate to the state. Texas remains strong in its ability to resource or obtain new developments.

Currently, there are no indicators of the industry slowing from any business perspective.

Low

COST BREAKDOWN

LO W

MARKET OUTLOOK

$199

“2019 has been a strong year for the Dallas-Fort Worth market. We’ve seen an increase in larger and more robust projects, ranging from approximately 250,000 square feet and higher. ” - Scott Eldredge, Senior Director, Project Management

CBRE PROJECT MANAGEMENT

28

LOS ANGELES, CA Silicon Beach is the innovative hub for tech companies with more than 500 companies calling the area home.

Los Angeles (LA) has seen an increase in tech and entertainment market sector activites due to the rapid growth of Silicon Beach. As the innovate hub for these tech companies, Silicon Beach has more than 500 companies calling the area home. Similarly, with the development of the Downtown LA (DTLA) arts district with its loft style buildings, there has been an increase in creative office space fit-outs and renovations catering to entertainment and tech companies.

Agile and open workspace is still a hot and trending topic in LA. Although, in order to balance the increased density with open office concepts, we’ve seen companies bring home/residential spaces into the office. Trends include providing more residential style settings to employees such as community and café like environments, casual seating and sofas. With the focus on providing office space that’s more residential in nature there has been a fundamental shift in office furniture.

The industry is moving away from the typical desk and chair setting to more sofas, plush chairs and soft seating.

MARKET PRESSURES

Construction activity has steadily increased over the last two years due to growth in the tech and entertainment sectors. Construction volume is at an all-time high, meaning service providers are stretched thin and many times cannot bid on new work. This increase in work has an upward effect on prices. We anticipate the next 12 months to be just as busy with the increase in activity.

Low

High

MATERIAL COST INCREASE Low

LOW

MEDIUM

HIGH

Professional Fees

$7

$11

$18

Construction

$55

$116

$195

FF&E

$24

$36

$47

Technology

$9

$15

$19

Relocation

$1.29

$1.32

$2.00

High

TOTAL COST PER RSF

LABOR SHORTAGE Low

High

WAGE FLUCTUATIONS

H

NORTH AMERICA FIT-OUT COST GUIDE

LEVEL OF ACTIVITY

COST

G HI

29

High

$96

$179

MEDIUM

As tech graduates enter the LA workforce, we will see a decrease in availability of experienced workers leading to a high turnover rate in the industry as experienced workers job hop for higher pay.

Low

COST BREAKDOWN

LO W

MARKET OUTLOOK

$280

“As a result of the strong local economic market, construction costs have steadily increased. Labor shortages are being felt across all service providers in the industry. We have to be very careful with how we manage projects in this fast changing environment.�

- Hank Warner, Managing Director, Project Management

CBRE PROJECT MANAGEMENT

30

NASHVILLE, TN The Nashville market remains strong, with over 2 million square feet of office space planned to open over the next two to three years.

Technology has taken over the design and construction industry with the creation of 3D graphics and virtual reality. In addition, technology is changing the way offices are planned and designed, having to incorporate them into plans early in the process.

We’ve seen a rise in prefabrication within many sectors. In particular, headwalls, bathrooms, elevators and curtain walls are among the many items being prefabricated. This process helps to expedite the schedule and save money in the midst of labor shortages in the area.

We continue to see the extension of permitting times among the subcontractor market. Awareness of these sorts of challenges are crucial to being able to plan projects accordingly.

MARKET PRESSURES

Nashville’s outlook for the next 18 months is positive with continued growth in the office sector. E-commerce giants and technology companies are relocating to the area due to the major investment opportunities available.

Current companies are thriving in the metropolitan area, showing no signs of slowing moving into 2020.

Low

COST BREAKDOWN High

LEVEL OF ACTIVITY Low

High

MATERIAL COST INCREASE Low

MEDIUM

HIGH

Professional Fees

$5

$6

$14

Construction

$45

$77

$135

FF&E

$13

$25

$45

Technology

$7

$10

$16

Relocation

$0.75

$1.24

$1.72

TOTAL COST PER RSF High

H

$71

$119

MEDIUM

WAGE FLUCTUATIONS

G HI

Low

NORTH AMERICA FIT-OUT COST GUIDE

LOW

High

LABOR SHORTAGE

31

COST

LO W

MARKET OUTLOOK

$211

“Technology companies are moving into the area while the market is hot. Due to the increase in demand, construction costs are rising and the labor force is scarce. With no signs of slowing, I suggest owners start planning early and take precautions by aligning subs early-on in order to meet or even decrease the project schedule. �

- Elizabeth Goodwin, Director, Project Management

CBRE PROJECT MANAGEMENT

32

NEW YORK, NY New York remains one of the most expensive places to build in the world. Large developments are still on the rise as major tenants seek to move to newer spaces.

The market continues to be active as we feel upward pressures on construction costs due to labor shortages. The hospitality, residential and financial sectors are actively pursuing office fit-outs in addition to smaller law firms.

The open workplace trend is still on the rise helping companies be more efficient with their space, maximize a smaller footprint and reduce capital costs.

Neighboring states of New Jersey and Connecticut are also seeing strong activity in companies expanding their existing portfolio of space and relocating due to attractive lease deals in bordering locations.

MARKET PRESSURES

We anticipate the market slowing as we move into 2020 due to large developments coming to a close. The overall U.S. construction industry is forecast to grow by more than 2 to 3% per year for the next two years, slower than previous years, but still reasonable growth. However, as long as the economy stays strong and active, we should see major developments begin popping up in mid-2020.

Low

COST BREAKDOWN High

LEVEL OF ACTIVITY Low

High

MATERIAL COST INCREASE Low

MEDIUM

HIGH

Professional Fees

$9

$17

$24

Construction

$95

$167

$208

FF&E

$28

$43

$60

Technology

$11

$16

$37

Relocation

$1.82

$2.14

$3.92

TOTAL COST PER RSF High

H

$145

$245

MEDIUM

WAGE FLUCTUATIONS

G HI

Low

NORTH AMERICA FIT-OUT COST GUIDE

LOW

High

LABOR SHORTAGE

33

COST

LO W

MARKET OUTLOOK

$323

“The New York market remains busy with major trades under stress including electrical and millwork.

These pressures are putting upward tension on pricing and therefore may exceed what’s typically forecasted for market escalation.”

- Nigel Light, Director, Cost Consultancy

CBRE PROJECT MANAGEMENT

34

PHILADELPHIA, PA The Philadelphia market is changing to accommodate the millennial generation in order to better attract and retain talent in the area.

The Philadelphia development and construction market is thriving. Although construction costs are high, they are not increasing as rapidly as they did in past years. Contractors and subcontractors are busy, which proves challenging in both quality of labor and pricing as the overall volume of work continues to increase across all growth sectors.

There has been an increase in larger projects (over 100,000 square feet) and a decrease in smaller projects (~15,000 square feet) due to lease rates increasing and tenant improvement allowances climbing. Many clients are trying to take advantage of current rates before they increase. Additionally, the market is changing to accommodate the millennial generation in order to attract and retain talent in the area. Companies are moving away from traditional offices and renovating to a more open office concept. The concept can decrease square feet, but provide employees with a more modern workspace.

Large scale build-to-suit and development projects are on the rise. Healthcare, higher education and law firm sector activity is strong. The office market in Philadelphia is always steady in the suburbs and Center City.

MARKET PRESSURES

With talks of a recession in the next year or two, contractors are increasing their work loads in preparation of a changing economy. Because of this, there is a lot of opportunity for growth in Philadelphia over the next 12 to 18 months.

Although we don’t expect to see a catastrophic downturn if the economy does shift, we do feel tension from our partners throughout the construction industry.

Low

COST BREAKDOWN High

LEVEL OF ACTIVITY Low

High

MATERIAL COST INCREASE Low

MEDIUM

HIGH

Professional Fees

$8

$12

$19

Construction

$61

$85

$161

FF&E

$17

$34

$48

Technology

$9

$14

$22

Relocation

$1.24

$1.62

$3.20

TOTAL COST PER RSF High

H

$96

$147

MEDIUM

WAGE FLUCTUATIONS

G HI

Low

NORTH AMERICA FIT-OUT COST GUIDE

LOW

High

LABOR SHORTAGE

35

COST

LO W

MARKET OUTLOOK

$253

“Philadelphia is a thriving market in a great location.

Companies are realizing the benefits of being a few hours from New York and DC, making Philadelphia their home.”

- Scott Allen, Senior Director, Project Management

CBRE PROJECT MANAGEMENT

36

PHOENIX, AZ The Phoenix market continues to remain strong in 2019.

The market is unique as we find tech companies, law firms, corporate offices and call centers enter the region as secondary offices or secure new space.

Construction is booming as life sciences activity has increased. Healthcare buildings, such as the new Neurosciences buildings, are being built from the ground-up along with additional hospital structures across the valley.

New office and relocation projects have increased while renovations have decreased due to lease terms. With more options for new office space and upgraded buildings, tenants can choose from a variety of building amenities that fit their needs.

In addition, retail is also a growing market in Phoenix. As consumers across the nation are relying more on next-day delivery, e-commerce businesses are building more warehouse space in major cities to meet the demand.

MARKET PRESSURES

In the short-term, construction should remain steady as investor and landlord owners are upgrading facilities to meet the demands of their tenants. Although there are trends to upgrade dated facilities, tenants are waiting for the lease terms to renew before they begin the renovation process.

High

LEVEL OF ACTIVITY Low

High

MATERIAL COST INCREASE Low

MEDIUM

HIGH

Professional Fees

$3

$5

$10

Construction

$51

$71

$100

FF&E

$13

$31

$41

Technology

$6

$10

$15

Relocation

$0.68

$0.78

$1.45

TOTAL COST PER RSF

LABOR SHORTAGE High

H

Low

G HI

NORTH AMERICA FIT-OUT COST GUIDE

LOW

High

WAGE FLUCTUATIONS

37

COST

$74

$117

MEDIUM

We are seeing some projects experiences up to a 10-15 % price increase due to wage fluctuations and its effect on material costs in the market and anticipate the rise to continue throughout the next 12 months.

Low

COST BREAKDOWN

LO W

MARKET OUTLOOK

$167

“Due to the labor shortage in Phoenix, project schedules have lengthened over the past few years.

Although we hoped this would be a temporary problem, it seems to be the new normal.”

- Allyson Calvert, Senior Director, Project Management

CBRE PROJECT MANAGEMENT

38

SEATTLE, WA The Seattle market is seeing a shift from small and medium sized construction projects to large, multi-year projects.

This shift in project size relates directly to tenants leasing more space than needed so their expansion options are not blocked by other leases on that space. Owners and occupiers are willing to pay a higher cost upfront in order to have the space available for expansion as they continue to attract top talent.

With no immediate reduction in workload visible, labor shortages continue to increase both project schedules and costs. In addition, project schedules are negatively impacted as lead times on imported materials or high demand domestic materials increase.

Cost and schedule challenges are not only impacting construction, but also furniture bidding and buying processes. Tariff increases impact product costs as well as production time. Although many companies assemble in the U.S., supply chains of parts are coming from other countries. We have started to focus on the furniture supply chain to be sure we account for potential delays in manufacturing and deliveries, as well as cost impacts.

MARKET PRESSURES

Large projects in downtown Seattle will continue to increase as the fight for good talent progresses. In order for companies to attract and retain good talent, they need to be centrally located to help with the commute and challenge local competitors.

Technology firms are still very active in Seattle.

In addition, the life sciences sector is booming as more opportunities arise in the area.

Low

High

LEVEL OF ACTIVITY Low

High

MATERIAL COST INCREASE Low

LOW

MEDIUM

HIGH

Professional Fees

$7

$13

$21

Construction

$90

$156

$199

FF&E

$21

$30

$51

Technology

$12

$16

$24

Relocation

$1.03

$2.39

$3.40

TOTAL COST PER RSF

LABOR SHORTAGE

G HI

High

H

$130

$216

MEDIUM

WAGE FLUCTUATIONS

NORTH AMERICA FIT-OUT COST GUIDE

COST

High

Low

39

COST BREAKDOWN

LO W

MARKET OUTLOOK

$298

“Although construction accounts for 50-70% of total project spend, it's important to pay attention to the second largest category, FF&E. Investing in FF&E is a critical component in the end-user experience.�

- Carrie Griffiths, Managing Director, Project Management

CBRE PROJECT MANAGEMENT

40

SAN FRANCISCO, CA Audio visual and IT network budgets have escalated as the demand for technology increases and becomes pervasive in designs.

From tenant improvements to civic infrastructure projects, the San Francisco Bay Area continues to experience a robust construction market. Construction costs remain high due to limited material and labor availability. Because of this, owners are seeking creative solutions to manage costs.

Limited specialty spaces, densification, multi-function spaces and occupancy optimization are top trends in the area. In addition, audio visual and IT network budgets have escalated as the demand for technology increases and becomes pervasive in designs.

Funding for amenity spaces, IT and workplace experiences continue to increase in order to attract top talent and to keep the workplace vibrant.

MARKET PRESSURES

The San Francisco Bay Area market shows no indication of slowing down. New developments are fully pre-leased during the planning and entitlements phase. Companies are increasing their commitment to maintain a presence in the Bay Area and are expanding their headquarters at a record breaking pace.

High

LEVEL OF ACTIVITY Low

High

MATERIAL COST INCREASE Low

MEDIUM

HIGH

Professional Fees

$10

$15

$24

Construction

$89

$157

$208

FF&E

$24

$33

$69

Technology

$9

$15

$28

Relocation

$1.77

$2.11

$4.26

TOTAL COST PER RSF

LABOR SHORTAGE High

H

Low

G HI

NORTH AMERICA FIT-OUT COST GUIDE

LOW

High

WAGE FLUCTUATIONS

41

COST

$134

$222

MEDIUM

In addition, low vacancy percentages are driving stay-in-place refresh projects. The trend to provide satellite offices across the Bay Area to alleviate commutes will be on the rise in 2020.

Low

COST BREAKDOWN

LO W

MARKET OUTLOOK

$333

“The pipeline of developments approved for future and immediate construction in the San Francisco Bay Area indicate the construction market will continue to grow through next year with no reprieve on material or labor shortages.�

- Eun Porter, Senior Managing Director, Project Management

CBRE PROJECT MANAGEMENT

42

WASHINGTON, D.C. Tenant allowances continue to be one of the highest in the country, mitigating some of the cost increases felt.

The Washington, D.C. regional market is driven by an increasingly diverse business community.

The Federal Government has been in contraction for a number of years, as a result they are renewing leases as opposed to developing new leases for Federally owned facilities.

The legal, technology, financial, corporate, industrial and non-profit sectors are active although they are occupying less space and in-turn, spending more on amenities. We expect an increase in defense and IT contractors with particular growth in cyber security. Industrial growth is high, with concerns of a plateau or decline due to the trade war. With e-commerce on the rise, we are seeing higher construction costs with continued pressure on construction labor.

In 2019, we’ve seen construction rise 5 to 6%. Areas experiencing the highest escalation are electrical/lighting, glass, millwork, drywall and HVAC. In addition, costs for furniture, audio visual, security and information technology have seen similar increases.

MARKET PRESSURES

Over the last six months, there has been a rise in costs in response to the trade war resulting in tariffs on materials and finished products.

If proposed tariffs take effect there will be a significant impact on construction materials and products.

Low

High

MATERIAL COST INCREASE Low

LOW

MEDIUM

HIGH

Professional Fees

$6

$11

$17

Construction

$63

$83

$149

FF&E

$20

$38

$56

Technology

$8

$13

$22

Relocation

$0.90

$1.17

$3.06

High

TOTAL COST PER RSF

LABOR SHORTAGE Low

High

WAGE FLUCTUATIONS

H

NORTH AMERICA FIT-OUT COST GUIDE

LEVEL OF ACTIVITY

COST

G HI

43

High

$99

$146

MEDIUM

Based on current trends we anticipate seeing price escalation in the 5 to 6% range again in 2020. However, the continuance of trade tensions and tariffs could potentially point to an economic downturn. The manufacturing and agriculture sectors are already experiencing economic contraction largely due to tariffs and could extend to construction and vendor materials and products.

Low

COST BREAKDOWN

LO W

MARKET OUTLOOK

$247

“The D.C. region continues to be one of the hottest real estate markets in the county. As such we have seen above average escalation in materials and labor.

This has been exacerbated by tariffs, immigration policy and escalation in cost of living.�

- Michael Considine, Managing Director, Project Management

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COST INDEX

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FIT-OUT COST INDEX | NORTH AMERICA The North American FitOut Cost Index uses our empirical project data to provide a relative costto-build metric, setting Chicago as the baseline.

This index is based on average project spend in each city across all low, medium, and high specification levels.

This index is intended to be used as a starting point to compare the relative cost of a potential project against a known benchmark of a different location.

Location is a key determining factor in project cost, but several variables are at play when calculating a sensible number for budgeting purposes — including existing conditions, quality of fit and finish, furniture specifications, connectivity and flexibility.

NOTE This index is for guidance purposes only. For more detailed budgetary advice or support developing an estimate, please contact the Cost Consultancy group or your local CBRE Project Management team. See page 59 for additional information.

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Š Tanner Bacik

FIT-OUT COST INDEX | GLOBAL This year's global index highlights the relativity of key markets around the world.

Cost indices are a useful resource to directly compare potential project costs to assist owners and occupiers in the decision-making process.

This index shows the effect on corporate real estate capital planning decisions by reporting the comparative difference of office fit-out costs in 23 key markets across four global regions.

This year each of the four global regions observed a consistent trend—the increased demand for technology to support the development of smart offices. The modern workforce expects an equally modern office to optimize productivity. This technology approach is becoming a focus for companies to attract and retain talent. Regardless of location, technology will continue to be a major focus for corporate real estate teams delivering new office spaces.

Our industry leading benchmark data, paired with CBRE’s global presence and market knowledge, allows us to leverage our expertise and provide the best solutions to achieve owner and occupier objectives.

NOTE The Global Cost Index is for guidance purposes only.

For more detailed budgetary advice or support in developing an estimate for a specific project, please contact the Cost Consultancy group or your local CBRE Project Management lead. See page 59 for more information.

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FACILITIES MANAGEMENT COSTS

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© RMA Photography

“While the short-term impact on operating costs is apparent, the long-term consequences are often difficult to predict or perhaps ignored. Underfunding preventative maintenance requirements by 50% can lead to an increase in total costs of over 30% over 50 years, a common useful life for office buildings.”

- Michael Towers, Director, Business Analytics

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NORTH AMERICA FIT-OUT COST GUIDE

FACILITIES MANAGEMENT COSTS Facilities Management costs (often referred to as operating expenses, or opex) cover the day-to-day operations and maintenance required to keep the office, equipment and its occupants functional.

Additionally, keeping up with maintenance and repairs is crucial for the long-term of the asset, particularly important for owned spaces.

Facilities Management costs are important for many reasons. From a total lifecycle cost, opex is often the single largest cost to an occupier, further stressing the need to understand suitable benchmarks for budgeting.

the main common components of Facilities Management (opex) costs. Key variables that can impact total opex include location, building type, level of service, landlord requirements, lease term and general market conditions.

In leased spaces, tenants are most likely to pay opex costs through a triple-netlease, which allocates the tenant’s prorata share of maintenance on top of rent, property taxes and insurances.

CBRE’s CostLab is the central source of facility cost benchmarks. CostLab is an online facility cost tool providing benchmarking, budgeting and capital planning based upon in-depth market research and analysis.

The categories shown on this page cover

Figure 15: 2019 Market Opex Benchmarks by Dollar Per RSF MARKET

CUSTODIAL

ENERGY

GROUNDS

MANAGEMENT

PEST CONTROL

REFUSE

ROAD CLEARANCE

R&M*

WATER/SEWAGE

TOTAL

Atlanta, GA

$1.11

$1.49

$0.19

$0.49

$0.20

$0.07

$0.03

$3.01

$1.17

$7.75

Boston, MA

$1.52

$2.32

$0.23

$0.56

$0.25

$0.06

$0.25

$3.65

$0.82

$9.65

Chicago, IL

$1.34

$1.12

$0.18

$0.52

$0.22

$0.12

$0.24

$3.44

$0.38

$7.56

Dallas, TX

$1.12

$1.31

$0.21

$0.43

$0.23

$0.07

$0.04

$2.92

$0.38

$6.70

Nashville, TN

$1.18

$1.82

$0.16

$0.47

$0.21

$0.10

$0.06

$2.92

$0.49

$7.41

New York, NY

$1.59

$2.10

$0.22

$0.65

$0.21

$0.13

$0.17

$3.68

$0.63

$9.36

Philadelphia, PA

$1.29

$1.13

$0.20

$0.54

$0.22

$0.05

$0.13

$3.53

$0.59

$7.67

Phoenix, AZ

$1.21

$2.17

$0.24

$0.43

$0.21

$0.13

$0.03

$2.95

$0.42

$7.78

San Francisco, CA

$1.66

$1.85

$0.38

$0.63

$0.27

$0.33

$0.06

$3.74

$0.90

$9.82

Seattle, WA

$1.34

$1.21

$0.25

$0.57

$0.25

$0.20

$0.09

$3.57

$1.27

$8.75

Washington, D.C.

$1.33

$1.69

$0.21

$0.60

$0.22

$0.11

$0.10

$3.43

$0.59

$8.27

NOTE All locations are based on a 25,000 square foot build in 2019 with medium level service, per square foot.

Repair and Maintenance (R&M) is calculated based on 30-year annual average opex costs for all preventative and

unscheduled maintenance with repair and replacement costs less than $10,000.

Level of service is one of the key drivers of Facilities Management costs. Use the following to adjust benchmarks to suit a specific level of service:

LEVEL OF SERVICE Basic

Medium

High

DESCRIPTION

COST FACTOR

Lower level of service, corresponding to minimal task frequencies and utility consumption

Between 20-50% less than medium

Average service levels

See figure XX

Higher level of service, corresponding to maximum task frequencies and utility consumption

Between 30-70% higher than medium

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INDUSTRY INSIGHTS

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“Reducing procurement lead times and overall schedules through supply channel compression enables us to consistently deliver projects faster and more cost-effectively than traditional models, bundled in an end-to-end delivery model that reduces the owner's risk.”

- Pete Shimkus Managing Director, Principal Projects Group

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NORTH AMERICA FIT-OUT COST GUIDE

PRINCIPAL PROJECT DELIVERY Owners are continually looking for cost-effective solutions to generate upfront capex savings and long-term opex cost reduction.

Being able to reduce or eliminate risk is a key consideration across all sectors. Turnkey solutions, such as principal contracting, streamline project delivery. Many owners and occupiers are seeking a principal delivery solution due to a number of benefits including: elivery risk transfer: redirection of delivery risk within budget, schedule and quality •D • S peed-to-market: increasing speed and avoiding supply-chain obstacles and vendor on-boarding educed administrative burden: one entity holding downstream contracts transfers all •R administrative, procurement and payment processes for vendors away from the owner • S upply chain compression: greater savings opportunities through leveraged buying power Figure 16: Value Creation Through Principal Programs

Safety world-class program

No Risk

Turnkey

Expertise

reduced risk to client through principal contracting

projects

extensive experience and skilled team

Cost

Reduced

reduced cost and optimized capital spend

change orders

SAFETY FOCUS

Delivered on-time and on-budget

SPEED TO MARKET

Reporting predictable and consistent

7-10% PROJECT SAVINGS CBRE PROJECT MANAGEMENT

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TAX-ADVANTAGED DESIGN THROUGH COST SEGREGATION Faced with continuing cost escalation and market pressures, owners are increasingly seeing the need to unlock ‘hidden value’ in real estate to keep capital investments on track. One area overlooked is the ability to create tax savings through smart design. Many owners are now seeking to reduce total tax burden, as well as increase their after-tax cashflow.

Decmonstrating value to the bottom line will be the key to keeping investment flowing. CBRE's Cost Segregation focuses on two key areas: educing total federal income tax exposure •R • I ncreasing after-tax cashflow through accelerated depreciation

Identifying alternative design solutions during both the planning and the design phases of construction enables the project team to design around the tax code, leveraging comparable alternatives with no impact to the aesthetic or functional nature of the project.

In addition to design specification, additional tax value is found through the means and methods of construction, including how items are affixed or installed.

Figure 17: Impact of Alternative Lighting Designs

Cove Lighting Short Tax Life

General Lighting Long Tax Life

Benefits • Minimal affect on design, never at the detriment of aesthetic or function • Providing $50,000 - $200,000 in tax benefits for every $1 million in construction spend • Change up to 40% of lighting contract to shorter life • Change up to 80% finishes to shorter life by means and methods of how items are affixed or installed • Analyze design choices and the tax implications and advantages 57

NORTH AMERICA FIT-OUT COST GUIDE

©Gensler

©Gensler

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KEY CONTACTS NORTH AMERICA COST CONSULTANCY CHRIS SMITH, MRICS Cost Consultancy Practice Leader t: +1 480 375 1225 e: christopher.smith2@cbre.com PIERRE BANI Cost Manager t: +1 920 213 2378 e: pierre.bani@cbre.com

PROJECT MANAGEMENT SPECIALTY SERVICES TRACY PARCELL, LEED AP Senior Director, Technology t: +1 602 735 5570 e: tracy.randall@cbre.com JULIE DEIGNAN Director, Furniture Advisory Services t: +1 312 861 7874 e: julie.deignan@cbre.com

FACILITIES MANAGEMENT MICHAEL TOWERS Director, Business Analytics t: +1 805 879 9923 e: michael.towers@cbre.com

PROJECT MANAGEMENT LOCAL LEADERS MARK WILDE Director, Atlanta t: +1 404 923 1390 e: mark.wilde@cbre.com HEATHER MCKEEN Managing Director, Atlanta t: +1 404 946 2480 e: mark.wilde@cbre.com ABE GAMBOA Managing Director, Chicago t: +1 312 297 7611 e: abram.gamboa@cbre.com

ERIC STANG Senior Managing Director, Business Transition & Move Management t: +1 248 936 6856 e: eric.stang@cbre.com

SCOTT ELDREDGE Senior Director, Dallas t: +1214 979 6367 e: scott.eldredge@cbre.com

PETE SHIMKUS, P.E., LEED AP Managing Director, Principal Projects Group t: +1 480 772 8910 e: peter.shimkus@cbre.com

HANK WARNER Managing Director, Los Angeles t: +1 310 487 9655 e: hank.warner@cbre.com

MATT RADER Practice Lead, Cost Segregation t: +1 214 979 6350 e: matt.rader@cbre.com

ELIZABETH GOODWIN Director, Nashville t: +1 615 493 9248 e: elizabeth.goodwin@cbre.com

PROJECT MANAGEMENT LOCAL LEADERS NIGEL LIGHT Director, Cost Consultancy, New York t: +1 203 707 3808 e: nigel.light@cbre.com SCOTT ALLEN, P.E. Senior Director, Philadelphia t: +1 610 251 5154 e: scott.allen2@cbre.com ALLYSON CALVERT, LEED AP Senior Director, Phoenix t: +1 602 735 5694 e: allyson.calvert@cbre.com CARRIE GRIFFITHS Managing Director, Seattle t: +1 206 292 6023 e: carrie.griffths@cbre.com

ABOUT CBRE COST CONSULTANCY CBRE Cost Consultancy is a dynamic group of solutions-oriented professionals relentlessly focused on superior outcomes for our clients.

Our experts bring great rigor, governance, cost control and decisionmaking capability to our clients with specific emphasis on reducing the total cost of ownership (TCO) at both the project and portfolio level.

Our team principally operates as key integrators to our clients' real estate, transaction management, project management, facility management and finance teams. Globally, CBRE has over 250 Cost Management / Quantity Surveyor professionals operating both at the dedicated account level and the Project Management Platform.

DISCLAIMER 2019 CBRE CBRE has taken every care in the preparation of this report. The sources of information used are believed to be accurate and reliable, but no guarantee of accuracy or completeness can be given. Neither CBRE, nor any CBRE company, nor any director, representative or employee of CBRE company, accepts liability for any direct or consequential loss arising from the use of this document or its content. The information and opinions contained in this report are subject to change without notice.

No part or parts of this report may be stored in a retrieval system or reproduced or transmitted in reprographics, recording or otherwise, now known or to be devised without prior consent from CBRE.

EUN PORTER Senior Managing Director, San Francisco t: +1 510 725 7265 e: eun.porter@cbre.com MICHAEL CONSIDINE, LEED AP BD+C Managing Director, Washington, D.C. t: +1 202 585 5670 e: michael.considine@cbre.com

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