Clear Priorities – May 27, 2025
Despite near-term headwinds, occupiers are planning for a future that includes office space
Uncertainty is one of the prevailing watchwords in commercial real estate as we move through 2025. That’s certainly the case for office occupiers, who have to consider near-term turbulence along with the long-term question of the role their leased space will play in the overall operation of the organization.
At least the long-term question is less existential than it was a few years ago. As we’ve seen in the return-to-office directives from major employers along with the sizable space commitments they’ve been making, occupiers believe that in-person, onsite workspace is here to stay.
Yet the function and configuration of that workspace has been evolving more rapidly than it did over the preceding decades, and office users expect this evolution to continue. As the midpoint of 2025 approaches, there are also obstacles that were less evident a year ago.
“Capital planning and office fit-out investments face significant challenges, including elevated material costs, labor shortages, and pressure on project timelines,” according to JLL’s U.S. and Canada Office Fit-Out Cost Guide 2025. “These factors are constraining budgets and schedules in an already complex project delivery environment. While 2024 proved remarkably stable, emerging economic and political uncertainties in the U.S. are increasing the risk of price volatility as well as disrupting plans for many occupiers.”
That being said, occupiers are looking ahead. Fifty-nine percent of U.S. and Canadian responders to JLL’s recent Future of Work survey plan to spend more on office fit-outs over the next five years. And they know what they’re aiming for.
“While uncertainty is the theme of 2025 so far, there are clear priorities for what makes an excellent office for occupiers,” said Andrew Volz, research manager, project and development services, JLL. “Quality, adaptability and forward-looking tech capacity are in demand regardless of any current volatility.”
That isn’t to minimize the impact of that volatility, though. “Multiple factors are reshaping business investment assumptions currently: policy shifts in trade, immigration, and spending are creating short-term impacts that companies must balance against long-term needs,” according to the Cost Guide.
Moreover, the private office project pipeline, which has been hampered since the onset of COVID-19, continues to limit the availability of high-quality, in-demand space, JLL reported. It’s also placing an emphasis on upgrading existing properties in the absence of new construction.
“Additionally, federal government office downsizing is significantly impacting core U.S. markets like Washington, DC. As a result, builders and occupiers alike are having difficulty staying proactive and managing these challenges.”
For builders, cost variations in onsite work are heavily influenced by labor, with local wages and proportion of specialty trades required for individual projects having considerable impact, JLL said. Mechanical, electrical and plumbing services and IT, AV and security are the next highest costs, with baseline requirements generally increasing. Specification of materials and finishes can account for more than a 20% difference in total costs.
In the year ahead, JLL reported that prioritizing adaptive capital planning will be key to navigating uncertainty. This involves focusing on “short-term, actionable steps that are aligned with long-term objectives, while continuously reassessing market conditions and adjusting strategies accordingly to maintain flexibility.”
Notwithstanding these uncertainties, “there is a continued demand for high-quality space that will be able to support business needs through change,” according to the Cost Guide. With a limited office pipeline and uncertain replenishment timeline, strategic investments in upgrading existing spaces are crucial to meeting evolving workplace standards.