Americas Office Fit Out Cost Guide 2024

OFFICE AMERICAS

FITOUT COST GUIDE 2024

LOOKING TO GO BEYOND MARKET AVERAGES and understand costs based on your unique construction requirements?

REACH OUT NOW

TO ENGAGE ONE OF OUR EXPERTS.

OFFICE FIT OUT COST GUIDE 2024

This guide, which covers 58 markets across the Americas, helps occupiers define their capital planning and relocation budgets, and includes a comprehensive fit out cost section that covers architectural trades; millwork; doors, frames and hardware; drywall, acoustic ceilings and carpentry; general finishes; mechanical, plumbing and fire protection; electrical and more.

KEY FINDINGS > The worst of supply chain stress is likely behind us, but geopolitical tensions and economic uncertainty will continue to impact supply chains, potentially resulting in increased costs and extended project timelines in 2024. > General contractors (GCs) are seeing supply chain relief in their buildouts; expectations for steady or even shorter timelines have increased from last year. However, some key components— including electrical switchboards and generators—continue to have extended lead times of 40+ weeks. > Commodity and construction costs grew at historically high rates in 2021 and 2022. Price growth has generally decelerated and, in a few cases, commodity prices declined in 2023 (e.g., steel and lumber). Still, costs are likely to remain high in 2024. > Much of the increase in construction “volumes” is due to price increases as opposed to real growth in construction project activity. The cost of construction

has been driven up the last few years by various levels of supply chain stress, materials inflation, interest rate increases and wage growth. All of this creates challenges for those tenants attempting to keep fit outs within budget. > Persistent labor constraints are reflected by GC pessimism that labor costs will continue to increase . Attracting skilled talent with higher wages and attractive benefit packages is one of the tools used to fill open positions. Construction has an older than average workforce so disproportionate retirements (of skilled field leaders and foremen, for example) create upward wage pressure when retirees are replaced. > The heightened bifurcation within the office market will force older assets to undergo upgrades to remain competitive. Occupiers will have fewer new office assets to choose from over the next few years , but there will be an increase in upgraded and renovated buildings to consider.

CUSHMAN & WAKEFIELD, AUSTIN

3

SUPPLY CHAIN STRESS IS INCREASING ACROSS THE AMERICAS

Global supply chain stress eased significantly from recent highs and hit a new low in May 2023. 1 Geopolitical tensions, however, have impacted supply chains, causing stress to tick up at year-end. > U.S. supply chain stress fell 20% from pandemic peak levels as of November 2023 but remains 27% higher than January 2020. Another key data point: Stress ticked up 8.1% in November 2023 from recent lows in July 2023. > Stress also eased from pandemic highs in Latin America, falling 19% from peak-pandemic highs. Current levels remain elevated—14% higher than pre-pandemic levels. Another key data point: Stress has recently ticked up 5.5% from January 2023 lows.

CUSHMAN & WAKEFIELD, PHILADELPHIA

SUPPLY CHAIN STRESS INDEX (2009-2023)

United States

China

Latin America

Global (RHS)

5

150

4

140

3

130

2

120

1

110

0

100

Supply Chain Stress Index

-1

90

Global Supply Chain Stress Index

-2

80

-3

70

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Source: Federal Reserve Bank of New York

4

Cushman & Wakefield

OFFICE FIT OUT COST GUIDE 2024

SUPPLY CHAIN STRESS INDEX (2019-2023)

United States

China

Latin America

Global (RHS)

160

5

150

4

140

3

130

2

120

1

110

0

100

-1

90 Supply Chain Stress Index

-2

Global Supply Chain Stress Index

80

-3

2019

2020

2021

2022

2023

Source: Federal Reserve Bank of New York

KEY TAKEAWAY

The worst of supply chain stress is likely behind us, but geopolitical tensions and economic uncertainty will continue to impact supply chains, potentially resulting in increased costs and extended project timelines in 2024.

CUSHMAN & WAKEFIELD, AUSTIN

5

Cushman & Wakefield’s winter 2024 survey of 62 general contractors (GCs) showed optimism that material delays will improve, and some project timelines won’t remain extended. This is the most optimism GCs have expressed in the last three years. GENERAL CONTRACTORS EXPECT FURTHER IMPROVEMENT IN MATERIAL LEAD TIMES AND PROJECT TIMELINES > For the first time in three years, GCs saw material lead times improve significantly: 44% saw slight decreases and 1.0% saw a significant decrease in the last six months. This is a huge improvement over our winter 2023 survey where only 4.0% saw a decrease. > In the next six months, 66% expect lead times to remain the same and 23% expect them to decrease slightly, while only 11% expect lead times to increase slightly (8.0%) or significantly (3.0%). This is also a significant contrast to our winter 2023 survey where 56% of GCs expected lead time to increase slightly (43%) or significantly (13%). > Project timelines have remained extended, as 70% of GCs experienced no change in timelines in the last six months. While 36% expect timelines to increase slightly (26%) to significantly (10%), 13% expect them to decrease slightly in the next six months. This is also improved sentiment from winter 2023 when only 4.0% of GCs expected some improvement in timelines.

KEY TAKEAWAY GCs are seeing supply chain relief in their buildouts; expectations for steady or even shorter timelines have increased from last year. However, some key components—including electrical switchboards and generators—continue to have extended lead times of 40+ weeks . Tenant improvement and fit out projects will still need to be closely managed to ensure on-time delivery.

6

Cushman & Wakefield

OFFICE FIT OUT COST GUIDE 2024

STRONG OPTIMISM THAT MATERIAL LEAD TIMES WILL CONTINUE TO IMPROVE CUSHMAN & WAKEFIELD CONSTRUCTION CONTRACTOR SENTIMENT SURVEY, WINTER 2024

Decreased Significantly Decreased Slightly No Change Increased Slightly Increased Significantly

100%

8% 3%

6%

7%

10%

10%

21%

80%

26%

39%

60%

66%

40%

52%

70%

44%

20%

23%

13%

0%

Material Lead Times Project Execution Time

Material Lead Times Project Execution Time

Past 6 Months

Next 6 Months

Source: Cushman & Wakefield Research

7

7

CUSHMAN & WAKEFIELD, BOSTON

CUSHMAN & WAKEFIELD, SAN DIEGO

COMMODITY AND CONSTRUCTION COST INCREASES HAVE DECELERATED, BUT PRICES REMAIN ELEVATED

Prices have fallen from pandemic highs for most commodities, but prices remain elevated relative to pre-pandemic levels. 2 > Most commodities saw a year-over-year (YOY) drop with the exception of cement. Lumber prices fell 4.5% YOY which was notable given Canadian wildfires in 2023 threatened supply. Lumber prices remain elevated, 24% higher, relative to pre-pandemic but are below their 10-year average of 3.9%. > Copper and steel prices are above pre-pandemic levels by 45% and 42%, respectively. Prices fell YOY for both,

with copper prices dropping 3.5% and steel prices declining 15%. This price deceleration will likely be short-lived; the forecast calls for prices to increase 6.2% for copper and 3.8% for steel by year end 2024. > Cement prices are 37% higher than 2019 levels and rose an additional 8.1% in 2023. The recent cost escalation is partially due to the closing of a large cement plant in Mexico, thereby impacting supply and demand. Prices are expected to tick up an additional 3.6% by year-end 2024.

COMMODITY PRICES OFF OF RECENT HIGHS COST INDEX FOR LUMBER, STEEL, COPPER AND CEMENT

Forecast

Lumber

Copper

Steel (Pipe and Tube)

Cement

800

700

600

500

400

300

Cost Index

200

100

0

Jan-11

Jan-17

Jan-12

Jan-21

Jan-15

Jan-13

Jan-18

Jan-16

Jan-19

Jan-14

Jan-10

Jan-22

Jan-23

Jan-24

Jan-20

Source: U.S. Bureau of Labor Statistics (BLS); Moody’s Analytics Forecasted

8

Cushman & Wakefield

OFFICE FIT OUT COST GUIDE 2024

Building costs, which include skilled labor costs, have increased more (up 3.8% YOY) and are currently 33% above 2019 levels.

Overall construction costs have increased throughout the Americas. 3 > U.S. construction costs decelerated in 2023 as inflationary impacts began to ease. Based on Engineering News Record (ENR) indexes, construction costs, which include common labor, increased 2.7% YOY, decelerating from annual increases of 8.9% in mid-2022. Building costs, which include skilled labor costs, have increased more (up 3.8% YOY) and are currently 33% above 2019 levels. > Labor costs applied significant upward pressure

on overall costs in 2023. Common labor costs increased 1.8% YOY, in line with the 10-year average of 2.1%. Skilled labor costs increased more rapidly (3.3% YOY) and surpassed the 10-year average of 2.5%.

CONSTRUCTION COSTS MODERATING MONTHLY YOY CHANGES

Construction

Building

Common Labor

Skilled Labor

10% 12% 14% 16% 18%

0% 2% 4% 6% 8%

Jul-21

Jul-22

Jul-23

Jan-21

Jul-20

Oct-21

Apr-21

Jan-22

Jan-23

Oct-22

Oct-23

Apr-22

Jan-20

Apr-23

Oct-20

Apr-20

Source: Engineering News Record (ENR) (McGraw-Hill)

9

CUSHMAN & WAKEFIELD, PHILADELPHIA

COSTS INCREASED ACROSS THE AMERICAS

COMMERCIAL CONSTRUCTION COST INDEX: CANADA

TOTAL CONSTRUCTION COSTS: LATIN AMERICA

Mexico Argentina Brazil

150

100%

140

80%

130

60%

120

40%

110

20%

100

0% Monthly YOY Change in Construction Index

90

80

-20%

Building Construction Price Index - New Commercial buildings, (2017=100, SA)

Jul-17

Jan-12

Jun-18

Mar-21

Oct-14

Sep-15

Dec-12

Jan-23

2013Q1

Nov-13

2016Q1

2019Q1

May-19

Aug-16

Feb-22

Dec-23

Apr-20

2021Q2

2022Q1

2017Q3

2015Q2

2018Q2

2013Q4

2014Q3

2016Q4

2019Q4

2023Q3

2022Q4

2020Q3

Source: Moody’s Analytics, Cushman & Wakefield Research

> In Canada, commercial building construction costs increased 5.5% YOY as of Q3 2023. These costs are 32% higher than pre-pandemic levels. > In LATAM, costs have also increased significantly over the past four years, but there are differences across countries. Overall construction costs—including commercial and residential—in Mexico and Brazil increased 3.5% and 2.6% YOY, respectively. These are moderate annual increases, down from double-digit annual cost increases in 2021 and 2022. > Astronomical inflation in Argentina has significantly impacted construction costs. Commercial and residential construction costs are up 205% YOY and have increased more than 1,000% over the past four years.

DLA PIPER, HOUSTON

10

Cushman & Wakefield

OFFICE FIT OUT COST GUIDE 2024

CUSHMAN & WAKEFIELD, AUSTIN

KEY TAKEAWAY

Commodity and construction costs grew at historically high rates in 2021 and 2022. Price growth has generally decelerated, and, in a few cases, commodity prices declined in 2023 (e.g., steel and lumber). Still, most costs will remain above the historical norm in 2024.

11

MERCADO LIBRE, MEXICO CITY

CONSTRUCTION GENERAL CONTRACTOR COST SENTIMENT IMPROVING

Cushman & Wakefield’s winter 2024 GC survey points to some interesting changes around cost sentiment: > GCs are seeing supplier cost increases slow down. Most GCs (57%) felt that supplier costs increased slightly in the past six months, while 8.0% felt they increased significantly. This was in marked contrast with the winter 2023 when 38% of GCs felt that supplier costs had increased significantly. > Looking forward six months, 49% of GCs expect supplier costs to remain the same, while 13% expect them to

KEY TAKEAWAY GCs are now familiar with operating in a high-cost environment but, based on the winter 2024 sentiment survey, most expect that supplier costs won’t continue to increase in the next six months.

decrease slightly. This is also a significant difference from the 2023 survey where only 29% expected supplier costs to remain the same and 8.0% expected a slight decrease.

12

Cushman & Wakefield

OFFICE FIT OUT COST GUIDE 2024

Looking forward six months, 49% of GCs expect supplier costs to remain the same, while 13% expect them to decrease slightly.

GCS ARE HOPEFUL SUPPLIER PRICES WILL REMAIN THE SAME OR DECREASE IN THE NEXT SIX MONTHS CUSHMAN & WAKEFIELD CONSTRUCTION CONTRACTOR SENTIMENT SURVEY, WINTER 2024

Decreased Significantly Decreased Slightly No Change Increased Slightly Increased Significantly

100%

3%

3%

7%

8%

32%

80%

34%

31%

57%

60%

40%

49%

54%

61%

23%

20%

13%

11%

8%

3%

0%

General Contractors GC's Suppliers

General Contractors GC's Suppliers

Past 6 Months

Next 6 Months

Source: Cushman & Wakefield Research

13

13

INFLATION AND HIGH INTEREST RATES IMPACT COSTS Inflation and the increased cost of capital have driven costs higher throughout the Americas. Most countries have managed to bring inflation rates down, but notable exceptions exist.

> Canada and Mexico have also experienced a similar drop in inflation rates and increases in interest rates. Canadian 10-year bonds were 3.48% in Q4 2023, up 215 bps from pre-pandemic levels and 310 bps higher than their 2020 lows. The Bank of Canada is expected to begin cutting rates in 2024. Mexican 10-year bonds fell to 8.9% as of Q4 2023 and were 190 bps higher than pre-pandemic levels but 45 bps lower than their 2022 peak. Interest rates in Mexico are expected to decrease further by year-end 2024. > Argentina faces historically high inflation and interest rates in the triple digits. With a new government in place, there are expectations of decreasing rates for 2024.

> In the U.S., the Fed has used monetary policy over the past two years to bring inflation closer to their target. Inflation ended 2023 at 3.3%, falling from a recent peak of 8.9% in June 2022. However, historically low interest rates were raised significantly to achieve this. Ten-year treasuries were 4.5% as of Q4 2023, a 265-basis point (bps) increase from Q4 2019 and 380 bps higher than the lows of 2020. While the Fed has signaled it has likely finished increasing rates, it is uncertain when decreases will begin. In the short term, companies will need to continue operating in a high interest rate environment, which adds upward pressure to financing and construction costs.

INFLATION PUSHED PRICES HIGHER ACROSS THE AMERICAS

Off Chart +211% +119%

2023

3-Year Avg Annual

16%

14%

12%

10%

9%

9%

8%

8%

7%

7%

7%

7%

6% 6%

6%

5%

5% 5%

5%

5%

5%

4%

4%

4%

4%

3%

3%

3% 3%

2%

2%

2%

1%

0%

-2%

-2%

-4%

Source: Moody’s Analytics, Cushman & Wakefield Research

14

Cushman & Wakefield

OFFICE FIT OUT COST GUIDE 2024

EASTMAN, MEXICO CITY

KEY TAKEAWAY Much of the increase in construction “volumes” is due to price increases as opposed to real growth in construction project activity. The cost of construction has been driven up the last few years by supply chain stress, materials inflation, interest rate increases and wage growth. All of this creates challenges for those tenants attempting to keep fit outs within budget.

COST OF CAPITAL IS HIGHER ACROSS THE AMERICAS INTEREST RATES HAVE INCREASED, CREATING AN ADDITIVE EFFECT TO COSTS

2019Q4 2023Q4 2024Q4 (Forecast)

30%

25%

20%

15%

10%

10-Year Treasury (By Country)

5%

0%

Argentina Brazil

Canada

Chile Colombia Costa Rica Mexico Peru United States

Source: Moody’s Analytics, Cushman & Wakefield Research

15

15

LABOR CONSTRAINTS CONTINUE TO IMPACT COSTS AND TIMELINES

The construction sector has been adding a significant number of jobs across the Americas, but labor constraints persist in many of these countries. > In the U.S., construction jobs have been added at a much faster rate than overall employment over the last 10 years. Residential construction ebbed

in 2023 but commercial building construction employment grew 4.9% YOY. That growth rate would have been even higher if more open positions were able to be filled.

CUSHMAN & WAKEFIELD, PHILADELPHIA

CONSTRUCTION EMPLOYMENT OUTPERFORMS IN MOST COUNTRIES

TOTAL AND CONSTRUCTION EMPLOYMENT

YOY EMPLOYMENT GROWTH

ANNUALIZED 10-YEAR GROWTH

Construction Employment YOY Total Employment YOY

Construction Employment 10-year Total Employment 10-year

-8% -6% -4% -2% 0% 2% 4% 6% 8% 10%

10%

Off Chart 21%

7.5%

6.5%

8%

4.7%

6%

2.6%

2.2%

1.9%

3.7%

4%

2.5%

2.3%

1.4%

2%

0.9%

0.7%

0.2%

0%

-2%

-6.8%

-3.1%

-4%

Source: Moody’s Analytics, Cushman & Wakefield Research

16

Cushman & Wakefield

OFFICE FIT OUT COST GUIDE 2024

CUSHMAN & WAKEFIELD, SAN DIEGO

17

WAGES INCREASE TO KEEP UP WITH LABOR DEMAND CONSTRUCTION EMPLOYMENT AND WAGES

> Robust construction employment growth is evident across most LATAM countries. Mexican construction employment has outpaced overall employment in both a 10-year and 1-year period, up 4.7% YOY. Mexican construction companies, like in many other countries, continue to experience difficulty in filling skilled labor positions. > The difficulty in filling positions in the U.S. is reflected in the wage increases companies have resorted to, in order to attract talent. Hourly wages for building construction grew 5.1% YOY and are 21% higher than pre-pandemic wages. Hourly wages for construction are 19% higher than private employment wages. > Canadian commercial construction employment growth has not been as robust as in other countries, but it has kept pace with overall employment growth over the last 10 years. Canadian hourly construction wage growth has been more tempered, growing 0.8% YOY and now sitting 11% higher than pre-pandemic levels.

UNITED STATES

Construction Employment

Construction Wages

20%

15%

10%

5%

0%

-5%

-10% Year-over-Year Change

-15%

2017 Q1

2021 Q1

2018 Q1

2016 Q1

2019 Q1

2022 Q1

2017 Q3

2021 Q3

2023 Q1

2018 Q3

2016 Q3

2019 Q3

2020 Q1

2022 Q3

2023 Q3

2020 Q3

CANADA

Construction Employment

Construction Wages

20%

15%

10%

5%

0%

-5%

Robust construction employment growth is evident across most LATAM countries.

-10% Year-over-Year Change

-15%

2017 Q1

2021 Q1

2018 Q1

2016 Q1

2019 Q1

2022 Q1

2017 Q3

2021 Q3

2023 Q1

2018 Q3

2016 Q3

2019 Q3

2020 Q1

2022 Q3

2023 Q3

2020 Q3

Source: U.S. Bureau of Labor Statistics (BLS); Statistics Canada:; Moody’s Analytics

LINCOLN INTERNATIONAL, LOS ANGELES

18

Cushman & Wakefield

OFFICE FIT OUT COST GUIDE 2024

CONTRACTORS EXPECTATION OF LABOR COSTS REMAINS UNCHANGED CUSHMAN & WAKEFIELD CONSTRUCTION CONTRACTOR SENTIMENT SURVEY, WINTER 2024

GC sentiment on labor costs was relatively unchanged from Cushman & Wakefield’s winter 2023 to winter 2024 sentiment surveys.

> Two-thirds of GCs expect labor costs to increase slightly (62%) or significantly (3.0%) in the next six months, which is similar to last year’s survey results.

WHAT IS YOUR EXPECTATION FOR OVERALL LABOR COSTS OVER THE NEXT SIX (6) MONTHS?

Decrease Significantly Decrease Slightly No Change Increase Slightly Increase Significantly

100%

3%

3%

80%

62%

64%

60%

40%

20%

31%

31%

3%

0%

Winter 2023

Winter 2024

Source: Cushman & Wakefield Research

KEY TAKEAWAY

Persistent labor constraints are reflected in GC pessimism that labor costs will continue to increase. Attracting skilled talent with higher wages and attractive benefit packages is one of the tools used to fill open positions. Construction has an older than average workforce so disproportionate retirements (of skilled field leaders and foremen, for example) create upward wage pressure when retirees are replaced.

CUSHMAN & WAKEFIELD, AUSTIN

19

OFFICE LEASING OVERVIEW > The office sector continues to be plagued by subdued demand, primarily influenced concerns. Both have prompted tenants to extend their decision-making timelines. > Vacancy rates have increased an average of 430 bps across the Americas, with rates ranging from a low of 9.2% in Chile to a high of 20% in Brazil. > Most countries in the Americas recovered the office-using jobs they lost during the pandemic and are on average 9.0% higher today relative to pre-pandemic office-using employment (OUE). OUE should grow an additional 1.7% in the next two years. Job growth acceleration in 2025 should translate to office absorption. by the increase in hybrid and remote work, along with ongoing economic

> In the U.S., Q4 marked the eighth consecutive quarter of negative office demand, coinciding with a historically high national vacancy rate of 19.7%. > It’s not all doom and gloom, however. Newer trophy Class A buildings are receiving positive absorption as occupiers look for the best space for their employees. > This separation is further reflected in the selling price of these assets. On average, the top quartile of U.S. office buildings sold for $92 per square foot (psf) more than overall office buildings from 2017 through 2019. Over the last three years,

this spread has risen over 57%, with the top quartile demanding a $53 psf premium.

20

Cushman & Wakefield

EASTMAN, MEXICO CITY

OFFICE FIT OUT COST GUIDE 2024

OFFICE VACANCY RATES HAVE CLIMBED

HOWEVER, MOST MARKETS RECOVERED THE OFFICE-USING JOBS THEY LOST DURING THE PANDEMIC

VACANCY RATES HAVE INCREASED 431 BPS ON AVERAGE

OFFICE USING EMPLOYMENT RECOVERED ACROSS MOST COUNTRIES

YOY

Pre-Pandemic 5-Year Forecast

Current Vacancy Rate Pre-pandemic Vacancy (2019 Q4)

2-Year Forecast

20%

25%

15%

19.7%20.1%

20%

18.5%

10%

16.7%

15.6%

15%

13.6%

5%

10.5%

9.2%

10%

0%

Overall Vacancy Rate

Employment Change

5%

-5%

0%

-10%

Brazil

Canada Mexico Peru United States

Source: Moody’s Analytics, Cushman & Wakefield Research

HIGH QUALITY ASSETS ARE BREAKING FURTHER AWAY

SALES PRICE PER SQUARE FOOT; 12-MONTH AVERAGE

$100 $150 $200 $250 $300 $350 $400 $450 $500

$- $50

Spread Office Top Quartile

Office

Source: Cushman & Wakefield Research, Real Capital Analytics

21

> Similar observations are evident in other regions. Canadian top quartile office assets also traded at a significantly higher premium of $175 psf from 2020 2023, double the average of $87 psf from 2017-2019. In LATAM, that spread is $37 psf higher in the last three years at $96 psf. > Despite leasing activity flocking to newer buildings, the office construction pipeline has continued to shrink in the U.S. Square footage under construction in the U.S. is down 45% compared to 2019, marking a 10-year low. Construction is also down in Canada, having fallen 35% since 2019. Construction has increased 43%, however, in LATAM over the same time frame. Reduced future deliveries will help foster a more competitive market environment and will benefit vacancy rates as supply decreases.

• Construction in other sectors is also declining. Despite the long-term tailwinds for industrial and multifamily, new deliveries will be lower in these sectors over the next few years due to current credit tightness and elevated cost levels. > Fit outs of older space will likely continue to compete with newer trophy buildings. • Office space renovations have more than doubled since 2019, driven by the increasing emphasis on amenities and ESG (Environmental, Social, and Governance) trends, which have compelled older assets to undergo upgrades to maintain competitiveness.

KEY TAKEAWAY

The heightened bifurcation within the office market will force older assets to undergo upgrades to remain competitive. Occupiers will have fewer new office assets to choose from over the next few years, but there will be an increase in upgraded and renovated buildings to consider. Building upgrades are focused on providing greater amenities to tenants in an effort to get people in the office.

22

Cushman & Wakefield

OFFICE FIT OUT COST GUIDE 2024

AMERICAS CONSTRUCTION PIPELINE DOWN 15% YEAR-OVER-YEAR

OFFICE SPACE UNDER CONSTRUCTION

OFFICE: UNDER CONSTRUCTION AS % OF INVENTORY

100 120 140 160 180 200

14%

12%

10%

8%

2023 Q4, 5.1%

6%

- 20 40 60 80

MSF

4%

2023 Q4, 1.9% 2023 Q4, 1.1%

2%

0%

2011 Q3

2013 Q1

2011 Q3

2013 Q1

2016 Q1

2019 Q1

2016 Q1

2019 Q1

2001 Q1

2010 Q1

2001 Q1

2010 Q1

2022 Q1

2022 Q1

2017 Q3

2017 Q3

2014 Q3

2014 Q3

2007 Q1

2007 Q1

2004 Q1

2004 Q1 Canada

2023 Q3

2023 Q3

2002 Q3

2020 Q3

2002 Q3

2020 Q3

2005 Q3

2005 Q3

2008 Q3

2008 Q3

Canada LATAM United States

LATAM United States

Source: Cushman & Wakefield Research

23

23

CUSHMAN & WAKEFIELD, BOSTON

BEST IN CLASS OFFICE FIT OUT REQUIREMENTS Occupiers continue to redefine the workplace and its design to better support people and what they expect from the office—collaboration, innovation, and a place to do focused work. On the following pages, we explore several topics important to office today. These include how today’s best in class environments support neurodiverse needs; positive attributes that attract people to the office; what our youngest generation of workers expect from workplace technology; and labor challenges.

24

Cushman & Wakefield

OFFICE FIT OUT COST GUIDE 2024

“OFFICE EXPERIENCE” MAY LEAVE “RETURN TO OFFICE” MANDATES BEHIND When employers want employees to return to the office, it’s often to cultivate the company culture, foster collaboration and enhance productivity. But while mandates may be effective at getting people back in seats, employee engagement has been shown to drop 26% with these efforts, 4 affecting the sentiments of top talent and job seekers as well as others. When this happens, mandates can become counter productive, and leadership may end up quickly backtracking. Nurturing employee engagement is one of the key reasons that a pull (“Office Experience”), not push (“Return to Office”), approach is becoming preferred. An inviting and effective “Office Experience” has a better shot at keeping employees engaged with the company and succeeding in their roles. Offices can be a differentiator by offering the benefits one has at home— namely having space and time to focus while minimizing distractions—and facilitating the things colleagues struggle to get at home—collaboration with in-person colleagues, mentorship, socialization and more.

25

CUSHMAN & WAKEFIELD, BOSTON

CREATING A “PULL” CULTURE

> Thoughtful zoning of space from active to quiet > Strategically placed in-between spaces These facilitate cross-collaboration and colleague interaction while enhancing individual, quiet work when needed. A key ingredient in making the office a magnet is a focus on physical and mental wellness, and solutions should always be creative and bespoke. The “pull” office is inclusive, enables connection, enhances group cohesion, and accommodates individual needs and preferences—making it worth the commute.

To create a successful “pull” culture, employees’ various productivity needs must be met. One employee’s workday may be comprised of focus work and virtual meetings, while another might spend much of their time presenting to clients. To be successful, the office must accommodate different work modes. A productive work environment should contain:

> A variety of open and enclosed work settings for different tasks and differing group and individual needs

BUT WHAT IF EMPLOYEES STILL DON’T SHOW UP?

Workplace benefits should be well-communicated and integrated within the space. By activating spaces within the office, employers will see a greater degree of success. There should be purposeful programming that aligns with company priorities. For example, if a company values sustainability, then consider emphasizing environmentally responsible design, while rewarding employees for ride sharing with a chef-prepared lunch made from local ingredients. The same organization could implement a zero-waste office program and on-tap beverages. Additionally, scheduling events—such as town halls, bringing in outside speakers, and celebrations—are a way to activate the space, increase office attendance, and optimize employee engagement. These initiatives are best conceived and implemented by aligned teams from Communications, HR and Real Estate working together to clearly communicate these events, making the workplace compelling.

26

Cushman & Wakefield

CUSHMAN & WAKEFIELD, AUSTIN

OFFICE FIT OUT COST GUIDE 2024

As the level of sophistication in workplace technology has grown, so has its uses. Today’s technology not only optimizes employee efficiency, but it also makes buildings smarter and improves employee workplace experience. Tomorrow’s technology will rely on AI and other advances to bridge the gap between the individual workspace and the collaborative environment. In the near future, AI may offer more customization for the office user, allowing an individual to monitor environmental settings in the office, including lighting and temperature, without impacting the experience of others. Additionally, generative AI could assist occupiers with workplace design and optimization; resource management; and workplace safety and navigation. Workplace designers are leaning into generative AI by leveraging data from sensors that track movements and environmental conditions to identify where people tend to congregate. Using the data collected, the AI-generated models design floorplans and layouts that optimize office spaces to the specific needs and work practices of employees. Today’s young workers expect a seamless technology experience, from using facial recognition to enter a building, to using an app to find open workstations, book a conference room and order lunch. Gen Z readily adapts innovative technology solutions and has high expectations of integrating technology into their everyday work. It will be key to leverage AI when building workspaces and implementing technology solutions for this and future generations of workers. Landlords and occupiers must consider significant technology implementation into their fit out plans. For example, video conferencing must be fully integrated into the office environment and conference rooms must be equipped with the latest technology to allow in-person staff to video and audio conference with teams across different geographies. Going forward, AI considerations will need to be factored into technology implementations. THE FUTURE OF TECH, AI AND THE WORKPLACE

27

CUSHMAN & WAKEFIELD, PHILADELPHIA

The one-size-fits-all approach to office space has given way to a more customized approach to design. With input from employees and stakeholders, companies are creating office spaces that support traditional ways of working plus so much more—helping employees feel energized and inspired, supporting learning and development, fostering a sense of belonging and improving connection with company culture. Case in point: Cushman & Wakefield’s Boston office recently constructed a best-in-class office space that reflects the way employees work, including neurodiverse employees. Cushman & Wakefield’s Workplace strategist, with input from stakeholders and employees, developed a design addressing needs of a multi-generational workforce, centering neurodiverse needs and sensory processing differences. The design resulted in spaces that truly appeal to the overall employee experience and attract diverse talent: > An active recharge area for informal interactions, including a putting green for energy release and a quiet area where employees can be part of the conversation without being part of the action. > Private, quiet areas and closed-door spaces supporting focus and one-on-one conversations, as well as providing noise mitigation. > A quiet recharge area along the window line. DESIGNING FOR NEURODIVERSITY: A CUSHMAN & WAKEFIELD CASE STUDY

> A wellness room, mother’s room and a gender-neutral restroom to support a more open and diverse talent pool. These spaces were designed with the intention to support employee productivity and wellness through: throughout the office, supporting employees who manage seasonal depression and migraines. > Strategic use of calming colors and patterns on wall coverings, furniture and flooring. > Adjustable lighting throughout the office for reducing eye strain, and migraine prevention. > Ample access to natural light

28

Cushman & Wakefield

LOOKING TO GO BEYOND MARKET AVERAGES and understand costs based on your unique construction requirements?

Employee and stakeholder input resulted in significant buy in from users, who were able to recognize their influence in the office design.

CUSHMAN & WAKEFIELD, BOSTON

REACH OUT NOW

TO ENGAGE ONE OF OUR EXPERTS.

CUSHMAN & WAKEFIELD, BOSTON

> Graphics that minimize “visual noise” and help viewers understand content, making the overall concept easy to visually recognize. Gathering employee and stakeholder input resulted in significant buy-in from users, who were able to recognize their influence in the office design. The space optimizes flexibility so that employees can move seamlessly through it based on their needs, allowing for both team collaboration and individual work.

Please note that many of the photos used in this report are of the Cushman & Wakefield Boston fit out.

21% of construction workers are 55 and older, representing a large portion of the workforce looking towards retirement.

30

Cushman & Wakefield

EASTMAN, MEXICO CITY

OFFICE FIT OUT COST GUIDE 2024

DLA PIPER, HOUSTON

LABOR CONSTRAINTS IN THE U.S. CONTINUE TO IMPACT CONSTRUCTION PROJECTS AND COSTS

The construction sector has consistently raised wages and increased benefits packages in the last few years to retain and attract talent. Average hourly wages have grown 21% since January 2020 and grew 5.9% year-over-year in 2023, much higher than the 4.3% increase in private wages in 2023. Wages are expected to see another year of above historical average growth in 2024, further impacting construction costs. For the construction sector to attract more talent, several steps need to be taken, including: > Providing existing workers with opportunities to train for high-skill, in-demand positions. > Creating programs, including apprenticeships, to attract a younger generation to the sector. > Improving legal immigration programs that attract and place workers in construction.

An aging workforce has begun to have implications on labor and no industry feels the impact more than the construction sector. While hiring has been robust, many open positions go unfilled as the underlying talent pool continues to decrease due to the aging of the existing workforce and lower immigration rates in recent years. Based on an analysis from Associated Builders and Contractors (ABC), the construction industry—including both residential and non-residential—will need an additional 501,000 workers in 2024 5 . That estimate is on top of the normal hiring the sector does each year. Their estimate is based on expected construction projects in the U.S. for 2024 and the staffing levels required to complete those projects. Hiring for construction projects will continue to face headwinds in 2024. One-fourth (21%) of construction workers are 55 and older, representing a large portion of the workforce that is nearing retirement. Unfortunately, not as many young people are looking to enter the sector, with only 7% of workers aged 20-35 currently working in construction. Young workers are more likely to be in the health, education, and retail sectors.

31

31

AMERICAS FIT OUT COST COMPARISONS USING THE GUIDE Estimated costs provided herein are indicative of market averages based on certain assumptions. Since exact costs for specific projects may differ to those presented here, we recommend engaging a Project & Development Services professional to advise on precise costs based on your unique construction requirements.

FIT OUT COST INCREASE BY MARKET GENERATION 1, YEAR-OVER-YEAR INCREASE (2023 - 2024 % CHANGE)

Off Chart +140% YoY

30%

20%

10%

0%

-10%

-20%

-30%

-40%

Peru

Indianapolis St. Louis Chile

Orange County Mexico City Phoenix Miami

Dallas

Austin

Tampa

Seattle

Detroit

Lower CT Boston

Denver

Atlanta

Raleigh

Philadelphia Calgary Chicago

Colombia Panama

Toronto

San Diego Orlando

Houston

Portland

Montreal

San Jose

Nashville

Charlotte

Baltimore

Argentina

Cincinnati

Columbus

Monterrey

Salt Lake City Costa Rica

Vancouver

New York City Upstate NY

Kansas City

Minneapolis

Guadalajara

Sacramento

Los Angeles

San Francisco

Washington DC

East Rutherford

Source: Cushman & Wakefield Project & Development Services

32

Cushman & Wakefield

OFFICE FIT OUT COST GUIDE 2024

MOST EXPENSIVE AND COST-EFFECTIVE MARKETS

Average Generation 1 (GEN 1) fit out costs in the Americas total $139 psf, up 3.2% from 2023’s $136 psf average. Generation 2 (GEN 2) costs are typically priced at a 10-15% discount to GEN 1.

The priciest markets for fit outs are in coastal gateway U.S. markets, with San Francisco being the most expensive market, where fit out costs are roughly 70% higher than the Americas average. Costs in the top six markets increased an average of 8.1% from the previous year, with the largest increase in San Diego at 31%. > San Francisco: $223 psf > San Jose: $219 psf > New York City: $213 psf > Seattle: $208 psf > Orange County: $192 psf > San Diego: $192 psf

The most cost-effective markets are non-dollar denominated, mostly Latin American markets and Mexico. There are nine markets with GEN 1 costs below $100 psf. This is up from five markets in the previous year. > Brazil

> St. Louis > Uruguay > Costa Rica > Peru > Monterrey > Chile > Colombia > Argentina

33

BREAKDOWN OF EXPENSES BY CATEGORY

19% 21%

>25% >20%

Mechanical costs account for over 20% of costs in 16 different markets, all in the U.S.

Electrical continues to be the costliest category, accounting for 21% of total costs. The second highest cost category is mechanical at 19% of total.

In Las Vegas, Miami, Salt Lake City, San Francisco and San Jose, electrical costs account for over 25% of total costs.

HIGH SIDE

Drywall, acoustic ceilings and carpentry—the third leading costs category— is consistently around 11%-14% of total costs, with some outliers:

Guadalajara 17%

16% Lower CT 17%

Reno 16%

LOW SIDE

11-14%

Dominican Republic 6%

Uruguay

Costa Rica

6%

1%

34

Cushman & Wakefield

OFFICE FIT OUT COST GUIDE 2024

PDS AMERICAS FIT OUT GUIDE – PRICING CRITERIA

GENERATION 1 PROJECT DESCRIPTION The Generation 1 tenant improvement project (Gen 1) scope and related costs are based on modern-day corporate office space with private offices, office workstations, executive areas, reception, training rooms, conference rooms and all other associated ancillary space customary in a corporate facility. Low Voltage Cabling, Audio Visual Equipment, Security, Furniture and other Furniture, Fixtures & Equipment (FF&E) items are excluded from the pricing. Given the fluidity of the construction market, a ten percent (10%) contingency allowance has been included in the cost. GENERATION 2 PROJECT DESCRIPTION The Generation 2 tenant improvement “adaptive reuse” project (Gen 2) scope and related costs are based on all of the design criteria of the Gen 1 project with the exception of the adaptive reuse scope described as follows:

> Selective demolition of the existing tenant improvements including finishes, partitions, ceilings and mechanical/electrical systems > Reuse 25% of existing partitions and ceiling system > Reuse 25% of existing sprinkler head locations > Reuse 80% of perimeter zone air distribution > Reuse 20% of interior HVAC zone air distribution > Reuse 100% of existing electrical distribution infrastructure > Reuse 25% of existing electrical power & lighting distribution > Reuse 100% of existing fire alarm main loop with 75% new and 25% relocated devices

TENANT IMPROVEMENT COSTS FIRST & SECOND GENERATION BY MARKET

1st Generation 2nd Generation

$250

$200

$150

$100

$50

$-

Peru

Chile

Reno

Brazil

Miami

Dallas

Austin

Tampa

Seattle

Detroit

Philadelphia Chicago Boston

Baltimore Denver

Atlanta

Upstate NY Raleigh

Puerto Rico Calgary

Panama

Phoenix

Toronto

Orlando

Houston

St. Louis

Uruguay

Sacramento Portland

Montreal

San Jose

Salt Lake City Indianapolis Columbus Nashville

Charlotte

Colombia

Lower CT

Cincinnati

Los Angeles Las Vegas

San Diego

Monterrey

Costa Rica

Guatemala

Argentina*

Vancouver

El Salvador

Kansas City

Mexico City

Minneapolis

Guadalajara

San Francisco

New York City

Dom. Republic

Orange County

Washington DC

East Rutherford

*Due to the extreme volatility of the Argentinian political and economic landscape, these values are fluctuating based on currency. Our local teams in Argentina can answer specific questions around costs at a particular time.

Source: Cushman & Wakefield Project & Development Services

35

> Office fit out costs increased 3.0% on average from 2023. Argentina, currently facing significant inflationary pressures, experienced the most substantial surge, with prices soaring 140%, followed by Peru at 34%. Conversely, average fit out prices in Costa Rica and Chile declined 7.0% and 35%, respectively. > Despite the drastic price hike in Argentina, it remained the most cost-effective market at $67 psf, 31% less than the LATAM (excluding Mexico) average. In contrast, the Northeastern U.S. emerged as the most expensive region at $173 psf, narrowly surpassing the Western U.S. by a mere $1 psf. LATAM was the most economical region at $97 psf, followed by Mexico at $105. LATAM’s cost advantages spanned multiple segments, with electrical cost being the GEN 1 COUNTRY COSTS AND ANNUAL CHANGES (LOCAL CURRENCIES) most significant differentiator, offering average savings of $13 psf compared to other regions. Drywall, acoustic, and carpentry was the largest cost for the Northeastern U.S., commanding a $9 psf, or 50%, premium compared to other markets.

EASTMAN, MEXICO CITY

FIT OUT COST INCREASE BY COUNTRY GENERATION 1, YEAR-OVER-YEAR INCREASE

Off Chart +140% YoY

40%

30%

34%

20%

10%

8%

8%

8%

6%

5%

0%

-7%

-10%

-20%

-30%

-35%

-40%

Argentina Peru Canada Colombia Panama Mexico United States

Chile Costa Rica

Source: Cushman & Wakefield Project & Development Services

36

Cushman & Wakefield

OFFICE FIT OUT COST GUIDE 2024

GEN 1 MARKET COSTS

> Fit out costs in California were notably high, with five of the top seven most expensive markets located within the state. San Francisco was the costliest at $223 psf, followed by San Jose, at $219 psf. The only California market not in the top seven was Sacramento, ranking as the fourteenth most expensive market out of 59 covered. Apart from Sacramento and Orange County, the remaining California markets were marked by elevated electrical costs, averaging $24 psf more than other markets. This is largely attributed to California’s stringent building codes and environmental regulations. They often necessitate additional wiring and the use of higher-quality materials, aligning with the state’s efforts to reduce reliance on natural gas and promote energy efficiency. > San Diego witnessed the biggest price hike over the last year, costing an additional $45 psf in 2024 after three categories jumped at least $7 psf—most notably general requirements, general conditions, and fees.

> Monterrey emerged as the most cost effective market in North America, priced at $84 psf, followed by St. Louis at $99 psf. Monterrey demonstrated cost efficiency across numerous categories, particularly in mechanical, plumbing and fire protection, priced at a mere $6 psf. Conversely, St. Louis offered clients savings in general requirements, general conditions and fees, totaling $10 psf less than the average. > Meanwhile, Salt Lake City’s declines in mechanical plumbing and fire protection drove prices down nearly 16%, the largest reduction in the U.S. After a spike in 2023, Salt Lake City now sits just under $113 psf.

TENANT IMPROVEMENT COSTS BY REGION GENERATION 1

Southeast US South US Mid-Atlantic US Northeast US Midwest US West US Canada Mexico LATAM

225

200

175

150

125

100

75

50

25

0

Reno

Brazil

Miami

Dallas

Austin

Tampa

Seattle

Detroit

Philadelphia Chicago Boston

Baltimore Denver

Atlanta

Upstate NY Raleigh

Puerto Rico Calgary

Panama

Phoenix

Toronto

Orlando

Houston

Sacramento Portland

Montreal

San Jose

Nashville

Charlotte

Lower CT

Cincinnati

Salt Lake City Indianapolis Columbus

Los Angeles Las Vegas

San Diego

Guatemala

Vancouver

El Salvador

Kansas City

Mexico City

Minneapolis

Guadalajara

San Francisco

New York City

Dom. Republic

Orange County

Washington DC

East Rutherford

Source: Cushman & Wakefield Project & Development Services

37

TENANT IMPROVEMENT COSTS BY SEGMENT AND MARKET

GEN 1: United States (USD)

SEGMENT COST BY MARKET

$0

$50

$100

$150

$200

$250

San Francisco San Jose New York City Seattle Orange County San Diego Los Angeles Las Vegas Philadelphia Chicago Boston Lower CT Sacramento Portland East Rutherford Atlanta Orlando Raleigh Phoenix Charlotte Minneapolis Dallas Washington DC Reno Austin Puerto Rico Houston Kansas City Salt Lake City Indianapolis Columbus Nashville Cincinnati St. Louis Tampa Detroit Baltimore Denver Miami Upstate NY

Arch. Millwork Contingency Doors, Frames, Hdwr Drywall, Acoustic, Carpentry Electrical General Requirements, General Conditions & Fee General Finishes Mechanical, Plumbing, Fire Protection Mis. Architectural Trades

Source: Cushman & Wakefield Project & Development Services

38

Cushman & Wakefield