VVA index: interior costs down by 15% since 2000.

Construction costs for standard law firm, corporate and financial services firm office interiors in New York have declined by more than 15% in the last two years, reflecting a trend that is expected to continue for the next 12 months and perhaps beyond. These are the findings of the first ever "VVA Interiors Construction Index," the premiere project management and consulting firm headquartered in New York.

"Office tenants planning a relocation or re-stacking of their space through 2003 are going to find their construction dollars stretching farther as costs continue to decline across all facets of an interior build-out," said Lorenzo Vascotto, a principal of VVA.

"Smart tenants keep an eye on rental rates to time their negotiations for the best financial outcome. However, construction costs can also make or break a budget--and our study shows that today's market will yield some very attractive construction numbers," added Irwin Schneider, another VVA principal.

The VVA study, compiled from many industry sources, including contractors and suppliers, as well as the company's own $15 billion project value database of the hundreds of interior projects it has directed, indicates that construction costs have declined steadily since Mid-Year 2000, when pricing reached an apex. Charting costs over five years for three different types of projects--corporate space, law firm space, financial services space--revealed that the prices are approaching a five-year low as they continue to decline.

For corporate space, Mid-Year 1998 interiors build-out costs averaged $60 per SF or all "hard costs" (including power and lighting, electric, dry-wall, carpentry, HVAC, fire protection and carpet, but excluding furniture). At the same time, traditional law firm space was comparable to corporate space at approximately $70 per SF and financial services space (with a much more open-plan configuration) cost $85 per SF.

By Mid-Year 2000, those costs rose by 25% or more in each sector: Corporate space cost approximately $85 per SF to build; law firm space cost averaged $110 per SF; financial services space cost approximately $120. And today, at Mid-Year 2002, interior build-out costs are at their lowest since 1998. Pricing stands at approximately $60 per SF for corporate space, $85 for law firm space, and $100 for financial services space.

"Since tenants will book their construction projects for the future, we expect to see a further decline in costs based on the slower pace of transactions and movement in the market," Schneider predicted. "We will examine numbers again at year-end and anticipate a continued drop in construction costs as competition for jobs mounts. This is a very good time to buy construction, and incorporate the benefits of the competitive market into an overall real estate budget."