The cost of office fit outs has been on a tear in recent years, outpacing tenant improvement allowances, according to a recent report by JLL. It reports that the average cost of an office fit out increased by 12% last year, fueled by a combination of strong demand for new space and increased prices for labor and materials. Tenant improvement allowances also jumped in 2018 by 13%—not by enough to fully offset cost growth, JLL said. This has resulted in an increase of net out-of-pocket costs to tenants. Of the total construction cost increase in 2018, 60% was offset by increases in tenant improvement allowances, and the remaining 40% was passed on to tenants.

TI allowances will keep pushing higher in 2019, JLL predicts. Concessions will continue to increase in most markets in 2019, as new supply will remain high.

On the other hand costs will continue to rise in 2019, JLL predicts, although at a more moderate pace than over the past year. One reason is that material costs are expected to remain close to current levels even as the shortage of qualified construction labor continues.

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