With all the moving parts of an office build-out, estimating the price of building out office space can be overwhelming. Even getting quotes from construction companies and other vendors can be nearly impossible for individuals who don’t do this every day.
Project managers put together budgets and bids for hundreds of tenant improvement projects and office build-outs, so they are familiar with pricing, which is a major reason we recommend hiring a project manager.
So, where should you start, and what should be included in your budget?
What Will Be Included in Your Office Build-Out Costs?
Budgets for office build-out projects are broken down into five major categories: hard costs, soft costs, contingency budget, and project management fees and vendor costs. First, let’s understand the difference between hard and soft costs.
Hard costs are usually the physical renovations to the space. Most of your budget will be dedicated to hard costs, but these can be hard to estimate without all of the details of your project already figured out.
Common hard costs our project managers see in Austin include:
- Paint and carpet
- Framing and drywall
These costs will vary depending on the number of changes and the quality of the materials used.
Soft costs are usually easier to estimate than hard costs. These costs include the expenses and services necessary to design and permit your project. The total cost will vary depending on the scope of the project.
Unlike hard costs, soft costs are not directly related to the physical building materials and labor.
Common soft costs include:
- Architectural designs
- Mechanical, electrical, and plumbing design (MEPs)
- Permit expediting
- Legal fees
For a more in-depth look at soft costs versus hard costs, read our article Quick Answer: Hard Costs vs. Soft Costs for Office Build-Out Budgets.
Vendor costs are the rest of your miscellaneous expenses and depend on your needs and the size of the project.
Vendor costs can include:
- Furniture, fixtures, and equipment (FF&E)
A Contingency Allowance
An experienced project manager will include a contingency allowance in case you incur any unexpected expenses.
You should include this in your budget even if you don’t hire a project manager.
For projects in “shell” condition, this allowance usually falls between 5% to 10% of the overall project cost, while remodels usually have contingency allowances of 10% or more since you are more likely to encounter unexpected issues in second-generation spaces.
A Project Management Fee
This is the last part of your budget, but one of the most important. The project management fee is generally 3% to 5% of managed costs but can vary depending on the project size.
Though this might seem like an additional expense, a good project manager will typically save you money on your overall project cost, and help you avoid making costly mistakes.
What Can Affect Your Office Build-Out Costs?
1. Condition of the Space: Is your space second-generation or shell space? Second-generation space may need to have minor renovations done, but typically the major infrastructure will be in place. Shell space often requires major improvements to the space’s look and infrastructure. Because of this, shell space usually requires a larger budget than second-generation space.
2. Size of the Space: If you have a small space, fewer materials will be required, but if you have a large space, you will have lower costs on a per-square-foot basis.
3. Quality of the Finishes: Do you want high-quality woods or will laminate work for your space? High-quality finishes will cost you more but may be necessary for your business.
4. Office Layout & Amenities: A large number of private offices or conference rooms will drive up costs due to the extra walls and wiring. Open floorplans will usually have lower costs.
5. Timeline: Planning ahead can help you stay within budget and starting late or having major changes in the middle of the build-out can add on major costs.
Read More: Things That Affect the Cost of Your Office Build-Out
Office Build-Out Budget Template
Whether you're moving to a new space or renovating your existing space, planning a budget is an important step in preparing for your office build-out project. Making sure you plan ahead can save you time and headaches on your project.
Use this handy budget template to start planning your next office build-out project.
Download Your Office Build-Out Budget Template Now
Ultimately, when it comes to budgeting for your office build-out, it’s best to consult a project manager to get exact costs, but these previously mentioned guidelines are a good starting point.
Using Your Tenant Improvement (TI) Allowance to Pay for your Office Build-Out
Your tenant improvement (TI) allowance can be used to pay for parts of your build-out. This usually includes improvements that will increase the value of the building for the landlord. These improvements generally include the previously mentioned hard and soft costs but not vendor costs or furniture, fixtures, or equipment.
What Are Typical Tenant Improvement (TI) Allowances in Austin, Texas?
A tenant improvement (TI) allowance is money given from a landlord to a tenant to help pay for the improvements to an office space, or sometimes other expenses associated with moving into a new space. The specific amount of this allowance is negotiated into the lease, along with a detailed outline of what it can be spent on.
In Austin, typical TI allowances vary but usually depend on a few variables outlined below.
Size of Space
The size of your space can affect how much TI you receive. A landlord wants to minimize vacancies and keep a consistent rental income, so larger leases are more favorable for them. Landlords may be willing to offer large TI allowances as an incentive for tenants to sign a longer lease.
Read Next: Tenant Improvement Allowance Questions, Answered
Landlords also want tenants to sign longer leases – preventing vacancies. This allows the landlord more time to recoup their initial out-of-pocket cost for the TI allowance, making a larger allowance more likely.
As a general rule, tenants who sign longer leases are allotted higher TI allowances.
TI allowances vary across different types of leases including a new lease, an expansion, a renewal, or a sublease. Generally, new leases and expansions receive the most TI allowances, and renewals and subleases receive substantially less.
These are good guidelines to follow when it comes to estimating TI allowances, but outside factors such as market conditions and other less noticeable variables can also affect the amount you will receive.
Read the full article here: Cost to Build-Out Office Space: How to Plan and Budget