Commercial build-out costs are one of the determining factors for attracting and retaining the tenants. This will help the landlords to find the tenants who will be ready to stay longer in your property. Let us find the factors that make up the commercial build-out costs and how it is a determining factor for successful commercial building occupancy.
The actual commercial construction cost breakdown depends on the type of commercial office space you want to create and the layout, functionality, and aesthetics of the office space.
Commercial build-out costs are a part of the renting process as the modern-day tenants want their office spaces to reflect their brand and are built in such a way that it can enhance the productivity level and morale of their employees. Hence it is now necessary for the landlords to invest more towards the cost to build a commercial building for offering more flexible commercial spaces and amenities to their clients.
The overall Commercial Building Construction Trends are on a positive trend and every year more than 50 million square feet of commercial buildings are on offer in the US market.
Estimating Commercial Build-Out Costs
In the office leasing and retail space market the term commercial build-out is referred to as office “build-out” or “ fit out” and is the process of finishing the base raw commercial space into a full-fledged, ready to occupy office space. This essentially involves modifying and customizing the spaces to suit the convenience of the businesses, their employees, and their customers.
The base estimation of Building a commercial building cost is expressed in average cost per square foot. The overall commercial build costs are decided based on the negotiations between the tenant and the landlord during the initial renting process and involve the types of improvements needed including
- Materials to be used
- Who is to bear the commercial build-out costs
- Who will monitor and complete the fit-outs
- The improvements that will remain after the lease termination
- The extent of improvements the tenant can remove when he vacates the office space
Tenants also contribute towards the commercial build-out costs, and the average cost of building commercial building improvements may come up to $ 65 per sq. feet with standard finishes.
Factors Affecting Commercial Office Build-Out Costs
The location of the office space is the main determining factor of cost to build a commercial building. For instance, in the US, the northeast and eastern regions of the country are expensive with high commercial build-out costs. The demand for office spaces and labor costs also determines the cost of building a commercial building.
However, there is an ever-increasing trend in the commercial construction cost breakdown and the factors like
- Project complexity
- Competition from overseas companies
- Supply chain bottlenecks Labor shortages
- The quality of the interior finishes
- Use of exotic woods,
- Provisions of stone countertops
- Installation of high- end doors
- Other upscale finishes
are some of the main factors that affect the commercial build-out costs
Season also plays an important role in the commercial construction cost break down as the rates for fuel, transport materials, and labor availability vary by the season. The commercial office space is a tenants market and there is a constant demand for basic and mid-range build-outs and amenities.
Commercial Build-out cost for Basic Office space comes to around $43 to $54 per Square foot as per the 2018 standards. In the case of mid-range office space, the commercial build-out cost comes to $ 65 to $80 now from $57 to $75/square foot in 2018.
Likewise, the cost of building a commercial building fit-out for executive office space is $96 to $157 per sq. feet which rose from $96 to $151/square foot the range of prices in 2018. In the case of a first-generation space, you have to add $ 10 to the above rates.
The commercial build-out costs for furniture are determined to be $28 to $80/Square Foot which was $20 To $70/Square Foot In 2018. The Furniture costs were $28 to $30/square foot for basic office space, $30 to $40/square foot for mid-range office space and $40 to $80/square foot for executive office space
A Fitness facility has become an integral part of the commercial office space and the commercial build-out cost for a fitness facility of about 10000 sq feet stands at $155 To $210/Square Foot which was $140 to $189/square foot in 2018.
The provision of a conference center adds about $150 To $205/Square Foot that rose from $136 to $198/square foot in 2018 to the overall commercial construction cost breakdown. Apart from this an Employee Dining Facility, Kitchen, and Servery or a Serving Room of around 5000 sq feet which were available at $157 to $208/square foot in 2018 have risen to $162 to $241 per square foot now.
Hard Commercial Build-Out Costs
These are the costs associated with the improvements to the commercial property that are added to the property with the full idea of leaving them behind when the tenant is leaving the property. These are of the nature of altering the basic nature of the building and are mostly borne by the landlord as they are meant to remain on the property even after the tenant leaves the property. These include permanent alterations and improvements made to the property and may amount to about 75 to 85 percent of commercial build-out costs.
Soft Commercial Build-Out Costs
These are costs are ones that are spent for obtaining services and payment of statutory and other fees required to be paid for the completion of the project. The commercial construction cost breakdown shows that this will amount to 8 to 12% of the total cost of the project.
Another type of commercial build-out cost includes the vendor costs that are incurred towards, signage, security, telephone, cabling for computers, costs for moving into the property and it may reach over 5 to 10 percent of the total commercial build-out costs.
Another basic commercial build-out costs.
These costs vary depending on the location of the building and it is estimated that the flooring takes $2.76 per sq. foot while the ceiling is found to take around $1.81 in a budget type construction, the HVAC systems installations or replacements require about $2.61 per sq foot for a building of 5000 sq feet space.
The Electrical Installations
including interior lighting cost $3.3 per sq. foot and the millwork for display fixtures comes to $10 per sq. foot and accounts for about 10% of the project cost.
Payment Methods for Commercial Space Modifications
The commercial build-out costs tend to be lower for larger projects due to the lower per-unit material cost and availability of discounts for bulk purchases. The ultimate cost to build a commercial building is dependent on many factors including the lease rate, tenant allowances, and landlord concessions.
Most of the times the landlords choose one of the following payment methods of
- Rent discounts where the landlord offers free or discounted rent for a certain number of months and the tenant utilizes this amount for making the improvements
- Building standard allowance – where the landlord asks the tenant to select one among a set of the standard package of improvements and he pays for them, and anything beyond the selected package must be borne by the tenant.
- Turnkey office build-out where the landlord agrees to deliver the tenant a finished office space ready to be occupied with everything they need to start their business already in place based on specific agreements between the tenant and the landlord.
- Tenant improvement allowance where the Landlord gives the tenants a payment or a discount on rent to carry out all the required improvement costs.
The average cost of an office building- out has increased by 12% in the past two years and at the same time more than 60 % of this increase in the commercial build-out costs are offset by enhanced rates of TI allowances hence the tenants have to bear the remaining 40 % of the said increase.
Cost of Building A Commercial Building
The cost of a commercial building build-outs depends on the class of the building also.
In Class A buildings with more than the average rent offering premier office space, and in Class B buildings with the average rental charges for standard fitments and adequate systems or in class C buildings that offer only functional spaces there is no one fit to all simple formula to calculate the quantum of commercial build-out costs.
Thus, the build-up costs vary widely depending on various factors that are residing in the market as well those that are outside the market and come into play during the lease transaction.