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The Cost of Commercial Construction: What Determines Your Budget?

Whether you are building a brand-new office building from scratch or simply renovating and remodeling a currently standing structure, the cost to build a new office can vary greatly across the country. Location, current economy, union labor, and materials are all parts of the whole and they differ depending on the market you’re in.

From the Ground Up

If you are building new construction, some variables to consider are:

  • Size of building

  • Location/market

  • General labor costs

  • Purpose of building

  • Building codes

  • Grade of material

  • Type of design

  • Cost of contractor

Knowing the square-footage, height of the building, and the materials used in construction can help you determine an estimated cost for the construction project. Also, be aware of zoning. The zoning of the land will determine the permits necessary to begin construction as well as the type of materials required. For example, property zoned for seismic activity (like earthquake-prone California) will require different materials than property zoned for hurricanes (like Florida).

Soil factors, topographical features, hillside ordinances, and proximity to the ocean will also play a role in the cost of construction. These variables make it very difficult to provide a ballpark estimate for a construction project, and it’s important to have as much information as possible to help you determine a budget range.

Blank Canvas or Build-Out?

If your project is not starting from the ground, and you’re completing a build-out on an already existing structure, there are still many variables to keep in mind. Creating an inspiring, attractive, and efficient workspace are the primary goals in a good office build-out. The environment and aesthetic of an office affect both personnel and clientele. While the cost of construction can seem daunting, a well-done build-out can increase production and profit.

As with every business decision, cost is the key element to consider. Unfortunately, determining the cost of a build-out can be difficult, as the price fluctuates depending on multiple factors. Second-generation (previously occupied) buildings, for example, have doors, fixtures, ceilings, etc. which can be utilized in the build-out. Typically, these spaces require minimal upgrades in flooring and paint. The estimate will be contingent on things like local market prices, materials, and labor.

New spaces in shell condition, which lack re-usable features, are inherently more expensive. Offices which require specialty build-outs like medical offices and labs, are more expensive than standard professional offices.

Although having rough estimates of figures can assist business owners at the beginning stages, it is important to consult with a contractor to get fine-tuned estimates specific to the region and the project requirements before beginning any lease negotiations.

Build-Out Negotiations: Turnkey vs. Tenant Improvement

Determining who will be paying for an office build-out is all part of negotiating the lease contract. Sometimes the landlord will be responsible for 100% of a standard build-out, while more extravagant projects might require financial input from the tenant.

There are two main types of build-out projects, and the terms of each must be mutually agreed upon during lease negotiations.

Turnkey build-outs are funded and completed entirely by the landlord, with specifications provided by the tenant. Allowances of a turnkey project usually include light fixtures, electrical outlets, closets, walls, phone jacks, and other rational features. Colors and styles of the carpeting and paint are often selected by the tenant.

Because the landlord backs these build-outs financially, they are often incentivized to cut corners and complete the space with cheaper materials and labor. Saving money on poor-quality carpeting is easier for a landlord and saves them the time it would take to find a qualified contractor.

Should the tenant desire more control over the build-out, a tenant improvement project might better suit their needs. With these build-outs, tenants can chose their contractor, their finishes, and keep an eye on their budget. The tenant improvement budget is negotiated in the terms of the lease, and both parties agree on a dollar amount per square foot. Before entering these types of negotiations, tenants should come prepared with accurate budget estimates.

Tenants with short-term leases, or companies leasing spaces smaller than 10,000 square feet benefit highly from turnkey build-outs. On a longer timeline, tenant improvement build-outs are almost always a better decision.


Developing a cost estimate for a commercial construction project can feel daunting. There are multiple variables to consider, whether the project is building new construction, building out from shell condition, or redesigning a second-generation office space. Being aware of zoning, geographical features, materials, labor, square footage can help you determine a more accurate estimated range. Also, when it comes to the build-out, having clear terms negotiated and outlined in the lease agreement is imperative.


Do you have a commercial construction project in the works? Contact Hannig Construction today and a representative will reach out to you shortly.


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