Kilpatrick: San Diego office build-out costs have escalated because of market conditions and Title 24 compliance.

Serra: Los Angeles has seen much more ground-up office development as compared to other markets in Southern California and the Southwest. As such, the construction labor shortage has been exacerbated, causing rising construction prices. In some cases, we have seen many general contractors turn down the opportunity to bid projects because they are too busy, which can artificially increase project budgets where the demand outstrips supply.

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GlobeSt.com: How are landlords in your market willing to work with tenants on rising build-out costs?

Walker: Landlords are willing to provide higher TI allowances for the right tenant fit. Understanding that many tenants are looking to open their layout and densify their workforce, which will require provision of new, more-efficient workstations, landlords are providing more FFE reimbursement opportunities in work letters. In addition, landlords are providing conference-center amenities that tenants can use or rent, allowing tenants to save on construction of large conference centers in their suite.

Kilpatrick: Landlords in San Diego are offering additional free rent, sweetening tenant-improvement allowances as well as offering additional tenant-improvement allowance with interest.

Serra: Similar to San Diego and Orange County, Los Angeles landlords are offering additional free rent and additional tenant-improvement allowances. Additionally, since build-out costs are only one component of the tenant's overall costs, more emphasis is being placed on the actual program and space requirements for tenants, i.e., do they take 30,000 square feet instead of 40,000 square feet? The reason for this is once you set the program square footage, you can only really influence 10% to 15% of costs through value engineering and design solutions. The real driver is in the initial program. This is also influenced by the additional amenities a building owner can provide outside of the tenant's space.

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GlobeSt.com: What strategies can a tenant employ when trying to keep build-out costs down while trying to make their space attractive for attracting and retaining talent?

Walker: We help tenants customize open and functional plans, which both saves construction budget and delivers a more connected space, encouraging more interaction and collaboration within the workspace. This open design strategy allows for more sizzle and pop at the reception, break areas and conference rooms. To retain talent, tenants can provide a workspace that is comfortable, functional and clean and deliver a wellness-friendly space. It is helpful to deliver accessible open break areas and provide high-end coffee service, fresh fruit and healthy snack choices to keep their employees energized and healthy. It is valuable to talent to provide fitness options that are in suite (treadmills) or a fitness center that is in the building or close in proximity. From a furniture standpoint, we are seeing more tenants provide their team flexibility, offering sit-stand desk options.

Kilpatrick: The majority of costs come from electrical and mechanical upgrades due to Title 24. Used furniture or lower furniture panels and benching helps in smaller person-per-square-foot build-outs. More-traditional private-office build-outs can rely on bold and harmonious color palettes, glazing provided by the general contractor and branding. Finally, one differentiator in hiring JLL is our synergy partnership, where we help specify up to 62 service providers and commodities where we had special pricing negotiated to save an average of 5% to 50% on specific trades within your project.

Serra: Strategies vary and are dependent upon the type of tenant. For example, for a law firm or investment firm, they will often have lots of enclosed offices, so their focus may be on the common spaces, which are more negotiable. For tech companies, the common area spaces have much higher value since they tend to work more in a collaborative environment with a younger demographic.

GlobeSt.com: What else should our readers know about office build out costs in your market?

Walker: Densification is the word. Tenants are looking for cost-effective ways to densify their space – fitting more employees into the same square footage or fitting the same number of employees into a downsized space. If your workspace is shrinking, it's vital that it becomes more collaboration and wellness focused. Construction costs are increasing, so to maximize value of your TI allowance, we inspire and achieve space that is thoughtful and connected, specific to tenant fit and function.

Kilpatrick: Don't be driven by dollars as much as by functionality and user experience, thus productivity over the course of the life of lease. Hiring an experienced project manager can help assemble the right team, assist in design and FFE selections as well as act on your behalf by negotiating and providing sound opportunities to really spend money wisely throughout the entire process.

Serra: Tenants often get sticker shock when they see the initial construction pricing. Then, they see that the AV/IT and furniture are much higher than anticipated. Our role is to manage those expectations at an early stage so that the initial design concepts fall within their desired budget; otherwise, there is excessive value engineering. AV/IT and furniture were much lower in costs 10 to 15 years ago as a percentage of the overall budget. These two line items have spiked in recent years because of the onset of the Millennial workforce. In summary, the tenants should carefully examine their staff type/demographics and focus efforts on addressing the key drivers around their staff. This will ensure far more functionality and, in turn, productivity as a business.