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Japan is the country with the highest office construction fee in the whole region
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The report only updates the price of the consolidated office
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Fire protection requirements and standards are extending the project completion time
Persistent inflation, tight labour markets, and ongoing supply chain delays have increased average fit out costs across Asia Pacific, according to Cushman & Wakefield’s 2023 Asia Pacific Office Fit Out Cost Guide, but major occupiers are absorbing the higher spend in their quest to improve return-to-office rates.
Head of International Research and co-author of the report, Dr Dominic Brown said that while fit out costs were up across the region by an average of 18 percent in local currency (7 percent in US dollar terms), there were early signs of easing pressure.
“Although costs remain above historic levels, supply chain stress has eased slightly along with the cost of shipping, and declines from the commodities pricing peak in 2022 have reduced pressure on energy and fuel pricing. Inflation, while still high, is believed in many economies to have either peaked or to be close to peak,” Brown said.
The report showed that North Asia markets remained the most expensive to fit out in a ‘Collaborative Hybrid’1 style, with only Canberra, Australia also appearing among the top five. Within the top 10, Hong Kong was the only market outside of North Asia and Australia/New Zealand to feature.
Among 32 countries surveyed, Vietnam’s two major cities namely Ho Chi Minh City and Hanoi are the second most affordable, just after India’s.
AVERAGE OFFICE FIT OUT COSTS IN 32 CITIES ACROSS ASIA PACIFIC
Source: Cushman & Wakefield
HOW DO WE CLASSIFY FIT OUTS?
BASIC HYBRID
- One-to-one assigned workstations supplemented with additional spaces for group work
- Some flexibility to address post-pandemic work styles
- Support functions limited to basic pantry area, generic meeting rooms and limited drop-in collaborative spaces
COLLABORATIVE HYBRID
- Mixture of one-to-one assigned workstations with zones of non-assigned work-points
- Flexible working practices have been adopted post-pandemic
- Support functions include an expanded break-out area, a variety of meeting rooms, and dispersed collaborative spaces
- More than 50% of the space is allocated to dedicated workstations
ADVANCED HYBRID
- Post-pandemic destination office with more than 50% non-assigned workstations and work-points
- Heavily tech-enabled spaces with frictionless audio-visual connectivity
- Support functions include multi-functional break-out area, a variety of meeting rooms, dispersed collaborative spaces augmented with specialist lifestyle elements such as library, focus and relaxation zones
- Client-facing areas have hospitality look and feel
Riaz Khan, Head of Project & Development Services, Southeast Asia : ”We are seeing longer lead times due to manufacturing and supply chain issues from China and other supply countries. Pricing remains competitive, but chairs and tables imported from China increased >21% because of the new tax. AV products have been taking more than 10 weeks for lead time because of the global lack of chips.”
On the Vietnamese market, Ms. Trang Bui, Country Head of Cushman & Wakefield Vietnam, commented: “Recently, the government has raised the standard of fire prevention and fighting in construction. Meanwhile, office lease transactions in recent years have happened mainly in existing buildings, due to the scarcity of new office supply that has achieved the new fire protection standards, which makes completion time even longer than before.”
Cushman & Wakefield’s Asia Pacific Head of Project & Development Services Tom Gibson said despite higher costs and constraints on capital expenditure, the conversation with occupiers remained focused on the changing working environment: “How much space do I need, and what is it going to look like?” he said. “Finding the balance between working from home and having people in the office – and how the right design can facilitate that – is still the number one conversation in most markets.”
Gibson said general economic volatility had slowed occupier decision-making as capital expenditure across all sectors came under closer scrutiny. But he said the flight to quality being witnessed in leasing transactions was also being reflected in fit out decisions.
“Occupiers are looking at how they can optimise their spend,” he said. “They see real estate as an essential expense and so they are looking to use their real estate to improve the employee experience.”
He said that in many cases, that meant taking on less space that was of higher quality.
“Occupiers are increasingly wanting to create destination offices for their employees. ‘Destination’ means different things to different companies – it could be creating a hospitality feel, or more social spaces – but ultimately, it is about creating a ‘stickiness’ that makes people want to come to the office.”
Extended report format better reflects more complex client needs
In addition to fit out costs, the report showed larger percentage increases for reinstatement and retrofit costs, although it noted that these started off from a much lower base than fit out costs.
The report also contained sections on sustainability, technology, procurement, and workplace strategy and change management to better assist clients considering a fit out.
Gibson said the more comprehensive format would help clients as they navigated the increasing complexity of office fit-outs post-pandemic.
“The office fit out process has taken on greater significance as occupiers look to their real estate to achieve their employee experience, sustainability, and diversity, equity and inclusion goals.
“Real estate decisions used to be made by only a handful of people within an organisation. Now we see a more collaborative approach across business functions, with more emphasis on employee needs. Our conversations with clients are now about human resources as much as they are about construction.”
Read the 2023 Asia Pacific Office Fit Out Cost Guide
Learn more about Cushman & Wakefield’s Project & Development Services.
