Estimating the cost of an office build-out can be a daunting task due to its complex nature. Obtaining quotes from construction companies and vendors can be particularly challenging for inexperienced individuals.
Project managers, well-versed in pricing, play a pivotal role in assembling budgets and bids for numerous tenant improvement projects and office build-outs. Thus, hiring a project manager is strongly recommended, given their familiarity with the process.
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, owner’s contingency, project management fees, and vendor costs.
Hard costs primarily encompass the tangible renovations required for the space. These expenses typically dominate the budget allocation; however, estimating them accurately can be challenging without comprehensive project details in place.
Common hard costs include:
- Paint and flooring
- Framing and drywall
Soft costs are generally more straightforward to estimate. They encompass the expenditures and services associated with project design and permitting. The overall cost will vary depending on the project’s scope.
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
- Other design consultants (structural and civil)
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 encompass miscellaneous expenses that are contingent upon the scope of your project.
Vendor costs can include:
- Furniture, fixtures, and equipment (FF&E)
A proficient project manager incorporates a contingency provision to accommodate unforeseen expenses.
You should include this in your budget even if you don’t hire a project manager.
In “shell” condition projects, the contingency allowance typically ranges from 5% to 10% of the total project cost. However, remodels often require a higher contingency allowance of 10% or more due to the likelihood of encountering unforeseen issues in second-generation spaces.
A Project Management Fee
The project management fee is generally 3% to 5% of managed costs but can vary depending on the project scope and projected total cost of the project.
Engaging a skilled project manager may appear as an additional expense; however, their expertise can ultimately yield cost savings on your overall project expenditure and prevent costly errors.
What Can Affect Your Office Build-Out Costs?
- Space Condition: Distinguish between second-generation and shell space, as shell space typically requires substantial enhancements and a larger budget compared to minor adjustments for second-gen space.
- Space Size: Smaller spaces demand fewer materials, while larger spaces offer lower costs per square foot.
- Finish Quality: Choose between high-quality wood and simpler laminate options, considering the necessity for your business and the associated cost implications.
- Office Layout & Amenities: The inclusion of numerous private offices or conference rooms can increase expenses due to additional walls and wiring, whereas open floorplans generally result in lower costs.
- Timeline Management: Proactive planning aids in budget adherence, while delays or significant changes mid-build can incur substantial 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 budget template to start planning your next office build-out project.
Download Your Office Build-Out Budget Template Now
Consulting a project manager is essential for accurate cost estimation during your office build-out. But, the aforementioned guidelines serve as a valuable starting point for your budgeting process.
Using Your Tenant Improvement (TI) Allowance to Pay for Your Office Build-Out
A tenant improvement (TI) allowance is money given from a landlord to a tenant to help pay for the improvements in an office space. The lease agreement includes a negotiated amount for this allowance, along with a comprehensive breakdown of its approved utilization. Typically, this covers the mentioned hard and soft costs; however, most vendor items will not be covered. Your TI allowance usually includes improvements that will increase the value of the building for the landlord. Refer to the work letter in the lease to confirm exact usage.
In Austin, typical TI allowances vary but usually depend on a few variables outlined below.
Size of Space
The extent of your tenant improvement (TI) allowance can be influenced by the size of your space. Landlords prioritize minimizing vacancies and maintaining consistent rental income, making larger leases more advantageous to them. As an incentive for tenants to commit to longer lease terms, landlords may offer substantial TI allowances.
Read Next: Tenant Improvement Allowance Questions, Answered
Landlords seek longer lease commitments from tenants to minimize vacancies and enable sufficient time for the recovery of their initial TI allowance investment. Consequently, a larger TI allowance is more probable in these cases.
As a general rule, tenants who sign longer leases are allotted higher TI allowances.
TI allowances differ based on the type of lease, whether it’s a new lease, expansion, renewal, or sublease. Typically, new leases and expansions receive higher TI allowances, while renewals and subleases receive considerably less.
While these guidelines provide a helpful estimation, external factors such as market conditions can also influence the actual amount of the allowance.
Read the full article here: Cost to Build-Out Office Space: How to Plan and Budget