Fitting Out Austin – Time and labor at a premium in one of the nation’s top markets

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By Eric Carville

When it comes to budgeting an office project, the costs alone can seem daunting. But when you finally add together, the costs associated with furniture, audio/visual, signage and all the other fixtures and equipment, the end result is a strong understanding of what goes into making them possible.

As one of our brokers told me, if it is what it is, then it tells a good story.

In Austin, we have the highest percentage of millennial workforce, with most in their first job just out of college, usually sitting at a three foot by five foot benching station.

The majority of our Project and Development Services (PDS) clients in Austin are technology firms. In fact, 90% of our projects are for technology-related companies, interested in open, collaborative environments with small dedicated workspace spaces, multiple breakout or conference rooms and open ceilings. It’s a trend that’s become the new standard for tech firms; something I see continuing on for the foreseeable future.

Additionally, different components for different office projects have different costs in different markets. Furniture prices here, for example, used to run generally from $20 to $25 per square foot, but now we’re looking at $25 to $30 per square foot due to inflation. The financial services and law firms we work with demand different layouts, furniture and overall office design. In our area, costs associated with their offices space are on par with the national average, demanding $45 per square foot.

The Austin market is tight. Securing the right location and delivering it on time is a constant battle. Finding space typically now takes longer than it normally did in years past. Brokers are having to continually be on the hunt for great space, and on top of that, the permitting process is slow, adding more time to the development process.

But the clients’ deadlines never change. After we go through the process of getting everything greenlit, we have to consolidate a lot of construction time. That’s a lot of long nights and long weekends, working two shifts on some projects, ultimately costing clients more to expedite deliveries.

The construction process became a bit more challenging about five years ago and got exponentially more difficult three years ago. Materials have gone up 3 to 5% each year during this time, and labor costs have gone up 10 or 15% each year. In the past six to eight months, it’s ramped up another level thanks to the labor shortage in the area, potentially affected by Hurricane Harvey, which also led to increased labor costs. The added time it now takes to find qualified construction personal is something that is passed along.

When we do the financial metrics, the cost analysis if you will, taking into account potentially delaying the project, having holdover rent or lost productivity versus paying the additional monies to build it out faster. The latter always ends up being the fiscally better option.

As you look at the Austin skyline, you may see 26 cranes towering the area – a number up there with the larger metros like Houston or Dallas, but with a quarter of their respective populations. In actuality, only about four of those are working on commercial office projects, another six or eight of them are working on projects on the University of Texas campus, building dormitories and science buildings, and the rest are building hotels or, the bulk, constructing high-rise multifamily buildings.

With the biggest hurdles of scheduling, timing and the labor shortage, it’s important for clients to be flexible and well-educated on what’s happening in the market.

Eric Carville is a Senior Vice President for the JLL Project and Development Services team. 

The 2018 JLL United States and Canada Office Fit Out Guide, comparing build out costs across office styles, space quality and complexity, is available for download today.