The 5th edition of our London and South East Occupier Fit Out Cost Guide provides latest data driven insights into the costs associated with the delivery of low, medium and high-quality specification fit outs in London and the South East.
The guide prepared by our London Cost Consultancy team aims to not only provide a sectoral analysis of average Category B fit out costs but now also includes a comprehensive “All-In” Fit Out Costs section which provides indications of supplementary costs that require consideration when occupiers define relocation budgets.
The Q1 2019 London and South East Occupier indicates that Category B fit-out costs have increased c. 1% year on year from Q1 2018 with the following average costs now being seen for delivering a low/medium and high specification Cat B fit-out:
- low specification averaging £56 per sq ft
- medium specification averaging £88 per sq ft
- high specification category B fit out averaging £139 per sq ft
Looking ahead it is anticipated that tender price inflation will increase 3% with further increases of 4%-5% in the years 2020-2022.
The fit out cost guide is issued with consideration to the following:
National Economic Context
Amid a backdrop of deteriorating macro-economic data the prevailing mood of the construction industry is one of uncertainty. DataExternal Linksuggests that Britain’s construction sector sustained its first back to back fall in output levels since August 2016 with commercial work and civil engineering activity subduing the positive contribution of residential building construction.
Furthermore, as the date for the UK's exit from the EU approaches (albeit the form in which this will be manifested is unclear) Brexit related uncertainty would suggest organisations taking a more conservative approach to real estate investment risk.
Optimism in the London Fit-Out Market
Despite the pessimism borne by recent economic data, Britain continues to be an attractive destination for inward investment attracting more foreign direct investment (FDI) in the years 2015-2018 than the next placed countries Germany and France combined with London leading the way. A decline in activity from both German and US investors were offset by a rapid growth in South Korean and Singaporean investors attracted by beneficial forex fluctuations and taking a longer-term view on the UK’s competitiveness.
In Central London, occupiers took-up 3.4million sq ft in the final quarter of 2018 External Link boosting the annual total to its highest since 2010. Amongst the new space taken-up, c. 27% have been firms in the technology, media and telecommunications (TMT) sector further underpinning London’s status as a global technology hub and proving contrary to predictions of a mass exodus from the City.
Furthermore, recent Office for National Statistics (ONS) employment data has indicated a net growth of the London workforce of 278,000 lead by the TMT and Financial services sectors respectively all requiring additional space for staff. Internal Cushman & Wakefield data suggests that there continues to be robust levels of activity within the London and South East office market with vacancy levels remaining low and c. 14million sq ft of space currently under construction (with a significant proportion pre-let) which all point to an active fit out market in 2019.
Construction Industry Structural Issues Continue to Weigh
The collapse of the Carillion Group in 2018 sent shockwaves throughout the industry, not only as it represented a significant insolvency of a strategic service provider but also the fear that others could follow suit. The failure of Carillion and c. 2,500 other firms in 2018 External Link must be observed through the broader lens of an industry plagued by a number of chronic performance issues, namely; low comparative productivity levels External Link, skilled labour shortage exacerbated by a lack of diversity, corrosive supply chain relationships and endemic cash flow problems.
Despite there being nascent signs of progress in these areas (particularly the drive to adopt offsite construction as a means to improve productivity, various high-profile diversity schemes and the adoption of BIM processes / technologies) Cushman & Wakefield data indicates these latent issues will continue to contribute to tender price inflation.
Commercial fit-out market outlook
Despite the mixed picture presented, there remains an unprecedented level of uncertainty heading into 2019 lead by the form of the UK’s withdrawal from the European Union. Nonetheless, in the context of a robust investment environment and wider structural issues it is anticipated that tender prices will increase 3% in 2019 with further increases of 4%-5% in the years 2020-2022.
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