CBRE Project Management North America presents COST ANALYSIS TENANT IMPROVEMENT PROJECTS Released September 23, 2013
For more information, please contact: Rick Smith Senior Managing Director Global Project Management Platform Leader Rick.smith@cbre.com T 704.246.3659 M 704.201.8754 Carrie Boegeman Director, Business Information Project Management Carrie.boegeman@cbre.com T 952.233.7340 M 952.818.4612 Visit www.cbre.us/services/projectmanagement To download a copy of this presentation. *Select Our Services >North America Cost Analysis CBRE 2013 All Rights Reserved. All information included in this proposal pertaining to CBRE including but not limited to its operations, employees, technology and clients are proprietary and confidential, and are supplied with the understanding that they will be held in confidence and not disclosed to third parties without the prior written consent of CBRE. This letter/proposal is intended solely as a preliminary expression of general intentions and is to be used for discussion purposes only. The parties intend that neither shall have any contractual obligations to the other with respect to the matters referred herein unless and until a definitive agreement has been fully executed and delivered by the parties. The parties agree that this letter/proposal is not intended to create any agreement or obligation by either party to negotiate a definitive lease/purchase and sale agreement and imposes no duty whatsoever on either party to continue negotiations, including without limitation any obligation to negotiate in good faith or in any way other than at arm s length. Prior to delivery of a definitive executed agreement, and without any liability to the other party, either party may (1) propose different terms from those summarized herein, (2) enter into negotiations with other parties and/or (3) unilaterally terminate all negotiations with the other party hereto. CBRE and the CBRE logo are service marks of CBRE, Inc. and/or its affiliated or related companies in the United States and other countries. All other marks displayed on this document are the property of their respective owners.
The CBRE Project Management platform recognizes our client s desire to compare project costs across global regions, countries and cities. While our project management professionals delivered over 15,000 projects globally for our clients, these projects ranged from ground up construction, renovations to simple move, add and changes. Industries represented include healthcare, banking & finance, automotive, energy, technology, insurance, telecommunications and industrial, as a wide array across smaller industries. The challenge to performing cost comparisons is negotiating through all the variables. External factors from our diverse client base influencing these project variables include: existing building conditions, lease terms, geographic dispersion, local codes, local customs and standards, materials and delivery logistics, and legal compliance requirements. Client variability is experienced through: leasing philosophy, project scope definition, design standards, project process, procurement and contracting methodology, internal compliance requirements, speed to market, and risk tolerance. A recent case study selected two similar tenant improvement projects in the same city, delivered at similar dates, executed by the same set of contractors and sub-contractors initially reflected a 45% cost variance. Upon completing a line by line leveling across all trades narrowed the variance to 19%. This is one example demonstrating the challenge to adjust for the many variables. CBRE Project Management sought a better solution in how to reduce or eliminate as many variables as possible, while generating a usable set of valid information for our clients. Several of our dedicated account clients have defined their space design standards, defined their delivery methodology, and tracked a common set of cost parameters across their program of projects. These efforts provide valid internal comparison with several of the variables fixed, but their data set of projects is small. Subsequent comparison to other dedicated account clients met with the challenge to conduct line by line leveling. Another approach we have found provides better results because more variables are fixed, is to define the project parameters, provide a common set of assumptions of existing building conditions and leasing conditions. This approach was paralleled in North America and Europe with similar objectives. Data from North America is provided in the following pages. EMEA is included in a separate CBRE paper. Asia/Pacific regions have yet to complete this approach, so the data available is across a dissimilar set of projects. PAGE 1
Another interesting finding from this approach was the clarity in office space density variations around the globe. We will be further assessing our analysis on a cost per available seat as a metric to compare to the traditional cost per square foot. NORTH AMERICA The following parameters were defined for the tenant improvement project upon which the project costs were developed. These scope of work parameters set our objective to reduce many definable project variables facilitating a better market by market comparison. Project scope definition and parameters: Assumed leased asset, new location for client Rentable square footage (RSF) = 20,000 RSF (typical full floor for US office building) Client use is non-customer facing, corporate commercial office Main data room is 500 RSF within client space. With supplemental cooling, but excluding backup UPS or generator Excludes tenant improvement allowances New furniture Work completed with single shift, regular time Landlord provided warm dark shell defined as: o Clear space, no demolition required o Includes fire wet pipe sprinkler horizontal distribution throughout o Flat floor, no raised flooring o Floor main electrical panels o Floor main mechanical cooling with duct headers to core walls o Finished restrooms for Men & Women matching building standard o Exterior blinds matching building standard o Wall board applied to interior of exterior and core walls Costs contain: Soft costs design professionals Hard costs construction trades Furniture, Fixtures & Equipment (FF&E) IT Cabling horizontal cabling Fees Move costs PAGE 2
North American analysis included twenty-nine (29) cities or regions where the cost analysis was completed. Chart 1 below shows the cost distribution across these markets in alphabetical order ranging from a low of US$60.50 per rentable square foot (RSF) in Columbus, Ohio to a high of US$200 per RSF in Montreal, Canada. The highest US city is New York City at an average of US$178.45 per RSF. Chart 1 Average Office Cost US$/RSF by Market $250.00 Avg OFFICE Project Cost by Market Cost per SF (USD) $200.00 $150.00 $100.00 $50.00 $0.00 Atlanta Carolinas Chicago Cincinnati Columbus Dallas DC Denver Detroit Florida Houston Indianapolis Kansas City LA Milwaukee Minneapolis Montreal Nashville NJ NY Philadelphia Phoenix Pittsburgh San Diego Seattle SF St Louis Toronto Vancouver Design & CA (Soft Costs) Const (Hard Costs) FF&E IT Fees Move Costs PAGE 3
Table 1 below provides the maximum, minimum and average cost per RSF in US dollars. Some markets received multiple inputs from different dedicated accounts within the same local market which led to the range of figures. For example, a West coast San Francisco based dedicated account may have provided input relative to an Atlanta project, therefore the data was assessed as an Atlanta project. Table 1 High to Low: Office Cost US$/RSF by Market Market Maximum Cost/SF Minimum Cost/SF Average Cost/SF Atlanta $137.85 $56.25 $97.05 Carolinas $123.70 $97.00 $110.35 Chicago $121.75 $102.75 $112.25 Cincinnati $68.18 $68.18 $68.18 Columbus $60.50 $60.50 $60.50 Dallas $113.51 $77.95 $91.82 DC $103.50 $103.50 $103.50 Denver $60.50 $60.50 $60.50 Detroit $77.50 $71.35 $74.43 Florida $164.71 $49.75 $102.24 Houston $112.91 $104.25 $108.58 Indianapolis $71.75 $71.75 $71.75 Kansas City $123.69 $95.99 $109.84 LA $216.23 $91.76 $136.16 Milwaukee $127.00 $127.00 $127.00 Minneapolis $81.00 $81.00 $81.00 Montreal $200.07 $200.07 $200.07 Nashville $75.85 $75.85 $75.85 NJ $92.36 $65.85 $80.90 NY $227.71 $147.70 $178.47 Philadelphia $100.05 $100.05 $100.05 Phoenix $89.75 $89.75 $89.75 Pittsburgh $83.00 $83.00 $83.00 San Diego $98.50 $98.50 $98.50 Seattle $233.96 $104.00 $148.62 SF $220.72 $95.25 $149.28 St Louis $75.25 $75.25 $75.25 Toronto $175.10 $118.07 $142.22 Vancouver $131.50 $101.97 $116.74 PAGE 4
Many clients require office sites across the country and internationally. A common question is the relative cost of one site to another site. This is where the external factors begin to have significant impact to project costs. A client can be requiring the same type space, aligned with their design standards, but should not assume the similar cost factors. Our CBRE exercise selected Atlanta as the baseline equaling 1.00 with the average cost per RSF at US$97.05. All other markets were then assessed on the average cost per RSF against Atlanta to create a Cost Ratio: Relative Cost to Atlanta. Chart 2 presents this useful radar diagram of relative costs. Chart 2 Cost Ratios: Relative Cost US$/RSF to Atlanta Cost Ratios: Relative Cost to Atlanta Columbus Montreal 2.50 Denver NY Cincinnati 2.06 SF Indianapolis 2.00 1.84 Seattle 1.54 Detroit 1.50 0.62 Toronto LA 1.53 0.62 0.70 1.00 1.47 0.74 0.77 0.78 1.40 0.50 St Louis Nashville 0.78 Milwaukee 1.31 NJ 0.83 0.00 1.20 0.83 Vancouver Minneapolis 0.86 1.16 Chicago 1.14 0.92 0.95 Pittsburgh 1.13 1.00 Carolinas 1.12 1.07 1.01 1.05 1.03 Phoenix Kansas City Dallas Houston DC Florida San Diego Philadelphia Atlanta PAGE 5
Square footage in North America has been the industry denominator in evaluating costs per a unit of measure. This metric made sense for the past several decades as there was a general understanding of common practices and use across a broad client base. However, as clients started adopting alternative work practices and realized the significant impact to their corporate financials due to underutilized space, the need for different metrics surfaced. Space was determined by the full time equivalent (FTE) headcount needed across various business units with a growth forecast applied for multiple years assuming there was a 1:1 relationship between FTE to provided workspaces (office or cubicle). Let s call the provided workspace (office or cubicle) a seat. Two driving factors are influencing change in the work environment: Drive to reduce the metric of RSF per FTE which may have been as high as 300 RSF/FTE, and has been driven down to 200 RSF/FTE, with some clients achieving less than this figure. Secondly is a concept of workspace sharing where the old application of 1 FTE : 1 seat has begun to migrate to 2:1 ratio or even a 3:1. This drives out the use the FTE as the basis for determining space and introduces seats as a better metric. Alternative offices increase the need for common and public spaces which can be a counter to the smaller space per seat. Utilizing the total number of seats provided within the office as the denominator, and total cost as numerator, we have begun to assess total costs per work seat. Table 2 provides an analysis of costs per work seat and Chart 3 reflects this data in graphical format. PAGE 6
Table 2 Office Cost US$/Seat by Market Market Cost per Seat Atlanta $20,540 Carolinas $16,532 Chicago $23,883 Cincinnati $17,045 Columbus $15,125 Dallas $16,796 DC $20,700 Denver $12,100 Detroit $17,720 Florida $15,639 Houston $18,403 Indianapolis $17,289 Kansas City $20,341 LA $30,599 Milwaukee $19,844 Minneapolis $16,200 Montreal $27,595 Nashville $18,963 NJ $15,169 NY $22,309 Philadelphia $14,822 Phoenix $27,197 Pittsburgh $16,600 San Diego $19,700 Seattle $19,717 SF $28,256 St Louis $17,706 Toronto $17,889 Vancouver $17,423 Chart 3 Office Cost US$/Seat by Market Cost per Seat (USD) $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 Cost per Seat by Market $12,100 $14,822 $15,125 $15,169 $15,639 $16,200 $16,532 $16,600 $16,796 $17,045 $17,289 $17,423 $17,706 $17,720 $17,889 $18,403 $18,963 $19,700 $19,717 $19,844 $20,341 $20,540 $20,700 $22,309 $23,883 $27,197 $27,595 $28,256 $30,599 $5,000 $0 Denver Philadelphia Columbus NJ Florida Minneapolis Carolinas Pittsburgh Dallas Cincinnati Indianapolis Vancouver St Louis Detroit Toronto Houston Nashville San Diego Seattle Milwaukee Kansas City Atlanta DC NY Chicago Phoenix Montreal SF LA PAGE 7
Expanding this analysis globally on a consistent basis is underway. Europe conducted a similar analysis, with more detail incorporated through floor plan drawings of high, mid and low range specifications and utilized quantity survey techniques for cost comparison. Asia/Pacific (APAC) and South America have heretofore relied upon the tedious leveling client projects across a vast geographically diverse cultural base. EUROPE Project scope definition and parameters were defined by a completed set of drawings depicting a) walls and joinery, and FF&E; b) ceilings; and c) flooring. These drawings were distributed and subsequently priced: Net Internal Area = 1,000 square meters (10,763 square feet) The building is located in the central business district and is in good condition. This is a generic design which does not take into account cultural differences and country specific space planning considerations and local regulations. Benchmarking does not take into account building abnormalities or variances based on fit factor. Costs have been generated in line with a base building that has the necessary infrastructure to support the fit-out. For example, we have suitable basebuild HVAC and power requirements to support the fit-out. The specification has been adapted to offer a choice in low, medium, and high specification. o A high end office interior would usually see equal weighting paid to both front and back of house space. Rich high quality finishes would be used to create an exceptional quality experience reflecting high standards for both client facing areas, staff workspaces and amenities areas. o Mid end office fit-out typically pays heavier budget weighting towards front of house spaces, with specific emphasis on client facing areas such as the reception and client conference suites. Back of house spaces are more budget conscious but still making sure staff are well catered for. o Towards the lower end the emphasis is placed on getting the most out of the existing space. Budget is tight for both front and back of house spaces, focus is placed on changing building services to maximize the quality of the design. Our European Cost Fit Out Guide is available under separate cover from your local CBRE Project Management business leader. PAGE 9
ASIA & SOUTH AMERICA Project scope definition and parameters: Defining a common project as done in North America and Europe has not been fully completed at this time. Available data has been collected from a set of client projects which vary is scope and delivery timing. WHAT S NEXT? This cost analysis for tenant improvement projects will continue the iterative enhancement to develop a global perspective of both common and unique characteristics around the globe. 1. Expansion of this methodology to Asia / Pacific and South American countries and markets to develop a global portrait which will add to the North America and Europe 2. Further utilization of our CBRE FUSION partners via utilization of floor plan layout, quantity takeoff, and furniture specification. 3. Further development of the local practices and conditions which drive variability in cost expectations. For example, identifying where country specific duties and logistics may have considerable impact on the cost of material goods. PAGE 10