Occupiers interested in leasing high-quality offices will be affected by slower new construction activity, meaning they will need to consider fit outs more over new construction, Cushman & Wakefield says in a guide released Monday.
Costs are expected to rise along with the increase in fit out construction because of rising commodity and labor costs, the firm says. Fit out costs will escalate an average 4.7% year over year, something building managers and occupiers should take time to understand, Cushman & Wakefield says in its 2025 Fit Out Cost Guide.
Although inflation has receded across the Americas, leading to overall construction cost increases falling below five- and ten-year averages, the sector continues to face the potential for increased inflation driven by tariffs from the U.S. administration imposed on key trading partners, including Canada, Mexico and other countries globally, Cushman & Wakefield says.
As a result, labor costs in the construction industry, alongside the costs of commodities like lumber, steel, copper and cement, continue to increase. “While some commodity prices eased slightly in 2024, higher increases are forecast in 2025. Likewise, wages for construction workers are expected to continue to increase as staffing projects remains challenging,” says the company, citing Moody’s Analytics.
Companies’ focus on ESG is contributing to the cost environment, the company says. Almost half, or 49%, of general contractors feel their clients are spending the same on ESG when compared with 2022, Cushman & Wakefield says, citing data from its 2025 GC Sentiment Survey. About 40% said their clients are spending more today, supporting the increased demand for commodities used in electrification efforts, according to the guide. “This has impacted not just costs but also timelines as delivery of in-demand components remains extended,” the firm says.
The new office construction pipeline has also declined 40% year over year across the Americas, meaning that occupiers may need to focus on upgraded fit outs in existing space due to limited availability of new space, per the guide. This conflicts with the flight to quality that remains a trend across major markets, with tenant preference for Class A space leading to significant leasing momentum in some markets, in some cases exceeding pre-pandemic leasing activity, Cushman & Wakefield says.
An increase in return-to-office mandates in the U.S. will likely lead to additional leasing momentum in 2025, with some tenants who shrank their footprints in response to remote work now looking to acquire new space, the firm says.
“The need to fit out space in response to office mandates is key to making office space attractive to employees,” Cushman & Wakefield says.
In order to facilitate fit outs by accommodating higher costs, office landlords increased Class A improvement packages by 7% year over year. Despite tenant improvement allowances increasing in many markets, the allowances being provided to tenants are generally not keeping pace with fit out cost increases, the guide says.
The top three most expensive markets in the U.S. for fit outs include San Jose at $219.32 per square foot, followed by San Francisco at $219/psf and New York City at $213/psf. The most cost-effective market is Kansas City at $108.27/psf, followed by Indianapolis at $114/psf and Kansas City at $108/psf, Cushman & Wakefield says.
