Global tariffs and the war in the Middle East are combining with elevated demand for high-quality workspace to boost the cost of office build-outs across North America.
Real estate services firm JLL estimates that the range of total fit-out costs for office space in the U.S. and Canada has climbed 3% to 10% year over year. Geopolitical headwinds, including the United States-Iran conflict and the ongoing trade disputes, have played major roles in increasing office build-out costs, JLL said in its U.S. and Canada Office Fit‑Out Costs Guide.
"Tariffs have reset the cost floor for construction materials across the region. Costs are still transmitting through supply chains," JLL said in the report. It added that the United States-Mexico-Canada trade renegotiation that is slated for July "carries potential for further escalation before year-end."
The U.S.-Iran conflict "has compressed global supply of petrochemical products embedded across fit-out projects, as well as shipping costs that impact every part of the supply chain," JLL added. It also said the material cost increases "are stickier than direct energy costs and compound the longer the conflict continues."
In addition, a flight to quality is pushing office demand toward newer buildings at a time when owners of older office properties are aiming to undertake upgrades to make their buildings more competitive with newer space.
JLL’s study shows office fit‑out costs averaging about US$295 per square foot across Canada and the U.S., compared to $205 globally. Canadian cities cluster near the high end of that range, reflecting higher workforce costs, tighter construction markets and more demanding baseline requirements for building systems.
Offices now require far more electrical capacity, cooling, wiring and technology. Workspace that supports video conferencing, data‑heavy work and modern security systems has become standard rather than optional. Technology‑related systems now account for roughly 10% to 12% of total fit‑out costs, pushing up the minimum price of office renovations regardless of layout or finishes, according to the report.
Focus on upgrading buildings
Despite office markets in the U.S. and Canada beginning to recover, ground-up construction to build new office supply has not yet returned. Therefore, JLL said, building owners need to focus on upgrading existing buildings to meet the demand for properties equipped with technology such as artificial intelligence.
"Renovation, adaptability-focused enhancements, and lease renewal investment now constitute the primary pathway for occupiers to establish offices ready for AI," the firm said in its report.
Canada’s largest cities feel these pressures most directly, JLL said. Skilled worker availability remains tight, particularly in electrical and mechanical trades, and much of the equipment used in modern office interiors is imported and priced in U.S. dollars. Currency swings add uncertainty to project budgets, pushing Canadian cities closer to high‑cost U.S. gateway markets and further from lower‑cost American regions.
Toronto sits at the top of the scale in Canada, ranking above most U.S. cities when office fit‑out costs are measured against New York as a baseline, according to JLL. Sustained construction demand and heavy power and mechanical requirements keep Toronto firmly in the high‑cost tier. Vancouver follows closely behind, with similarly elevated costs that place it alongside Canada’s most expensive office markets.
Montreal sits one step down on the list. Fit‑out costs are lower than in Toronto and Vancouver but remain elevated, exceeding those in many U.S. cities. Upgrading older buildings still requires substantial capital, even if the hurdle is smaller than in Canada’s two largest gateways.
Calgary and Edmonton are at the low end of the Canadian range, with fit‑out costs well below those of the country’s largest metropolitan areas, reflecting softer workforce conditions and a less intense development cycle. Ottawa falls between these groups, with costs above the Prairie markets but generally below Toronto and Vancouver.
Higher fit‑out costs are arriving alongside rising prices for basic construction materials. U.S. tariffs on steel, aluminum and copper have pushed up material prices in Canada, even when builders buy domestically, as CoStar recently reported. Steel prices climbed about 32% year over year, while copper rose more than 40% and aluminum increased roughly 17%, making projects harder to price once designs are finalized, CoStar reported, citing data from contractor Pomerleau.
Those pressures weigh most heavily on older office buildings, particularly as owners try to reposition them to meet today’s tenant demands.
“Continued elevated construction costs pose a challenge to owners of older, well‑located Class A office buildings seeking to reposition their assets to attract tenants seeking modern amenities,” said Mitch Strohminger, CoStar’s director of market analytics. “High construction input costs mean that rent will need to be higher as well to cover those costs, and the fit‑out needs to be done in such a way that it truly creates long‑term value.”
“For many owners of older office buildings, especially Class B and Class C properties, the financial means to undertake these improvements likely just don’t exist,” Strohminger said. “As a result, we expect to continue to see older office properties repositioned to other uses.”
The flight to quality seen in Canadian office markets has led to increased demand for older office properties, as Strohminger reported. In the case of Montreal, limited availability in newer downtown office buildings has pushed tenants toward older towers, easing vacancy across several older vintages.