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Office space shrinking, but fit-outs getting more expensive: JLL

Amenities once considered luxuries are now commonplace

The JLL 2023 U.S. and Canada Office Fit Out Guide. (Courtesy JLL)
The JLL 2023 U.S. and Canada office fit out guide. (Courtesy JLL)

"Right-sizing" office space is a trend that shows no sign of abating, especially on the heels of the pandemic and a major shift in employee work habits, a new report from JLL says.

Examining more than 700 of its clients’ 3,800 office projects across 58 markets, JLL’s report, 2023 U.S. and Canada office fit out guide, demonstrated the majority of tenants have opted to reduce square footage. In the last two years, JLL’s average office fit-out declined by 11 per cent, which the report attributed to shrinking square footage per employee and, thanks to hybrid work configurations, fewer daily in-office attendees.

However, shrinking square footage has implications for economies of scale – densifying technology, furniture, fixtures and equipment have put upward pressure on per-square-foot costs.

JLL does, however, anticipate some economies of scale will return and notes cost increases have been more aggressive in smaller projects. Moreover, smaller spaces require more programming compromises as a consequence of both elevated costs and having less space to work with.

Rob Ramsay, JLL Canada’s executive vice-president of project and development services, told RENX having employees return to their offices will be of greater necessity in certain industries than others, but time will tell which ones.

Trending toward office amenities

There is an unmistakable trend toward setting up offices with amenities that abet greater collaboration between colleagues. Ramsay cites JLL’s own downtown Toronto space as an example of what the modern office looks like.

“Our reception area has waiting spaces and meeting spaces available for employees and clients where they can be comfortable, work or have private phone calls,” he said. “Our cafe is a place for employees to unwind and relax, but also conduct face-to-face meetings or private meetings.”

The cafe has a ping-pong table, but it’s also a place where employees can conduct face-to-face or virtual meetings.

Other amenities that are proving popular in today’s office sector focus on wellness, including fitness or yoga spaces, although Ramsay said the latter isn't commonplace among JLL projects.

The report even noted wellness amenities have gone from high-spend luxury additions to baseline expectations for companies and employees.

Still, the costs can be significant if they require mechanical, electrical and plumbing servicing or additional supportive technology, especially in smaller footprint offices.

The report cites two of the most common requests, which it prices as additional finishes and requirements that exceed some identified build-out costs.

A wellness/mother’s room comes in at $11,000-$15,000, while gender-neutral bathrooms cost $18,000-$22,000.

Ramsay said, however, such amenities can play significant roles in a company’s ability to successfully recruit talent.

“Employees will appreciate companies having a thought-out holistic view that has intelligence put into the design and intention to create effective spaces that include resources and amenities for the betterment of their employees,” Ramsay said.

ESG now a major factor

Environmental, social and governance (ESG) has become a major factor in determining where companies decide to conduct business.

Companies now take their ESG scores seriously – JLL’s previous fit-out guide noted organizations representing 90 per cent of the global economy have attached themselves to a net-zero carbon goal – and green leasing is gaining in popularity.

Dubbed Green Leasing 2.0, JLL describes a collaboration between owners, occupiers and third-party stakeholders to deliver on ESG goals through the duration of a lease, which transcends typical contractual lease clauses.

According to JLL, 34 per cent of global occupiers have adopted green leases and another 40 per cent are slated to follow suit within two years. Forty-two per cent of investors also have green leases in place while 37 per cent will have them by 2025.

JLL’s own green strategy – which it has deployed at 381 sites in 52 countries comprising 4.6 million square feet of leased space – has resulted in 15 per cent less energy used than the standard code, with savings estimated at US$2 million per year.

Office fit-outs also have 25 per cent less embodied carbon than their equivalent standard designs, the report said.

But with the carbon tax becoming more punitive as 2030 draws nearer, building operators who don’t act quickly will be left scrambling.

“Tenants ultimately will drive landlords towards the need to green,” Ramsay said. “There are some asset owners that have already made moves to implement a net-zero carbon strategy and I would say at this point, in 2023, they’re ahead of significant tenant demand. Tenant demand is there but it’s not as significant as it will become.

“A tidal wave is coming. We’re trying to figure out a way to help our investor and asset manager clients make a move on greening their buildings sooner than later. I think generally real estate owners are going to have to make a move.

"Once the asset owners figure out the right formula, there’s going to be a flight to resources because there aren’t unlimited resources to perform the retrofits.”

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