Now more than ever, employee experience is a topic of conversation in the workplace. Ensuring your office space is meeting your employee's needs is crucial for overall corporate morale and the success of your company.
The workplace is in a constant state of change; whether it’s advancing technology, going from a closed office space to open office space or no office space at all, it is important to be flexible in how you adapt to the needs of your people and your business. We have found that many clients understand the need for change but are unaware of the cost of making those transformations.
Today, we are kicking off a new cost and pricing series where we explore the different key cost categories of various types of office construction projects.
What to expect?
An office renovation can be as simple as a light refresh that might include a new coat of paint and new carpet, to a complete renovation that includes a total reorganization of the space to accommodate the business’s workflow and operations. The cost of a smaller improvement project can usually be negotiated with the landlord, and the cost could be included in the lease agreement. A larger renovation or new buildout may involve negotiating a tenant improvement allowance from the landlord based on a cost per square foot of leased space. Any overage of this cost would be borne by the lessee.
Office configurations can also vary widely from a totally open floor plan with some collaboration spaces to a more traditional office with 40%-50% enclosed offices and workspaces. The enclosed office spaces require more wall construction and greater individual control of heating/cooling and lighting systems.
Office renovation and buildout construction costs can vary widely based on geographic location, age of the building, previous use, needs of the business, quality of finishes, build quality, labor costs, and size of the space. Square footage costs tend to be lower for larger spaces or areas of improvement, depending on the complexity and quality of the work assuming that the functional needs of a smaller space are similar.
How much will it cost?
Below is a breakdown of some Approximate Budget Construction Costs. This will give you a general idea of the cost and what you might expect at each level of renovation.
Light Refresh $10 - $50 per square foot
Updated or refreshed casework
Remodel $60 - $110 per square foot
Limited wall reconfiguration
Limited mechanical systems
Limited lighting reconfiguration or added lighting
Limited casework improvements e.g., reception desk
Full Renovation $100 - $200+ per square foot
This is a complete transformation of existing space and includes the removal of existing finishes, walls, fixed casework, restrooms, etc. Reusing existing mechanical systems is common but reconfiguring ductwork to accommodate the new space requirements (may include upgrades to the system) is needed most of the time. If the space is presented as a shell (a building that has a roof, four exterior walls, a concrete floor, and is largely unfinished), the cost can be reduced to not include demolition. Approximate costs exclude loose furnishings (FF&E), and any special tenant requirements.
Design costs can also vary widely based on the location, size, and scope of work. Generally, design fees can add from $4 to $15 per square foot. Another standard means for determining design fees is by establishing a percentage of construction costs. For many state and federal projects the fee is even advertised in advance by the contracting agency. For the purposes of an office redesign, a light refresh could be performed by a small team that may only involve an interior designer or just an architectural team. These fees can range from 3-7% depending on the level of finish detail required. A remodel will generally require the services of an architect, interior designer, and mechanical, electrical, plumbing, and technology engineer. The fee reflects the larger team and can be expected to range from 6-10%. For a full renovation as described above, the additional complexity and scope result in fees that can range from 8-12%. Note that often larger projects can push the fee ranges lower as there are economies of scale gained in the design process.
*Disclaimer – These ranges represent typical fees and are dependent on your project and the work required.
Furniture, Fixtures, and Equipment (FF&E)
Furniture, Fixtures, and Equipment include all items not normally included in the construction category. The reason for this is that in many construction delivery models, these scopes of work aren’t included in the construction manager’s contract. Items in this category include workstations, conference room furniture, training room furniture, seating, audiovisual equipment, signage, branding, wayfinding, and art and decor. At times, an owner will procure these items directly or leverage the services of a professional project management firm or design company to assist.
The costs for FF&E vary drastically and are driven by owner preference. It is typical for the FF&E package on a refresh project to equal or exceed the construction costs. In the case of a renovation or remodel project, FF&E typically falls within 30%-60% of the construction cost.
From an accounting perspective, interior building improvement costs paid directly by an organization that is leasing space from a landlord can generally be recorded as a fixed asset on the organization’s balance sheet, and the expenses split out (amortized) over the estimated life of the asset or the remaining lease term. For renovation costs of an owned office, building improvements can generally be capitalized as a fixed asset on the balance sheet and then depreciated over the life of the building. For either leased or owned space, design costs, as well as other direct project costs, can often be included in the capitalized asset amount. FF&E items also have potentially advantageous depreciation benefits that should be considered.
*Disclaimer – this is not tax advice. Please talk about your specific situation with your tax advisor.
While an office redesign may seem overwhelming and costly, it is important to remember these changes lead to an investment, not only in your space but in your people and your business.
Office design is becoming an important factor in attracting and retaining top talent, increasing productivity, and bringing attention to office culture and to the company brand. Once you understand the need for change in your own space and have a sense of what it might cost, it’s just a matter of taking that next step.
A successful redesign starts with understanding the true reason behind your change and establishing a clear plan. SHYFT Collective can help you evaluate those needs and work with you to understand how to best integrate change into your workplace, whether that is a light refresh or a full renovation.
Stay tuned for future posts reviewing the different cost and pricing categories above as we continue through this new series!