Comparing fit-out costs
In this section, we explore the average cost of fit-out across high, medium, and low specification in 42 markets, comparing these costs on a super-region basis.
EMEA - US$/ft2
EMEA - US$/m2
Zurich, London and Edinburgh top the chart as the most expensive cities in Europe, Middle East and Africa (EMEA) for fit-out on an average cost per square metre basis. This is largely driven by higher labour costs in these markets.
While low specification fit-outs are comparable across UK regions, London commands a premium for high-specification briefs. Despite the volatility of Brexit, it remains one of the world’s pre-eminent financial hubs. The banking sector continues to make significant investments in flagship headquarters in both the City and Canary Wharf, upholding the premium end of the market. In Paris, we find a similar trend, which is exacerbated by competition from other sectors. Offices compete with luxury retail brands and boutique hotels for high-end materials and, more significantly, for bespoke experience from specialist trades. This is why the high specification in the French capital comes out at a very high US$3,521 per m2 – over US$1,000 more expensive than the mid-range.
Costs are elevated in cities that are popular business hubs due to their top universities, where talent can be lured from the graduate pool. Munich continues to be a base for the major technology players due to its strong engineering schools, showing average costs of US$2,997 per m2 for the high-specification fit-outs expected from many of the tech giants. One such example is the current renovation of the historic Arnulfpost (“Postpalast”) complex, which will see an iconic Munich building revitalised by Google. Across Europe, the lingering effects of the pandemic and ongoing war in Ukraine are still being felt in terms of costs. This is especially true in Germany, due to the country’s reliance on Russian gas and materials from China. Prices have risen due to persistent supply chain disruption and the length of the Chinese lockdown. In Dublin, the number of large-scale fit-out projects has been scaled back. The tech sector, which has traditionally dominated market share, has slowed. Professional services firms have driven the bulk of demand in the past year. The high cost of living in the city is translating into the delivery environment. Skilled labour shortages continue to exacerbate labour costs – particularly for MEP and joinery packages. Despite cost challenges, lead times have improved for most materials. The Middle East region, like elsewhere, witnessed a significant shift in its corporate landscape due to COVID-19. Since the pandemic ended, office fit-out projects have regained momentum with a clear shift in demand for hybrid working environments and workplace design strategies geared towards flexibility, technology integration, and employee-centric environments.
Americas - US$/ft2
Americas - US$/m2
In North America, the economic powerhouses of New York and San Francisco are the most expensive locations for fit-out, held up by the high cost of labour. Post-pandemic, occupiers are looking for a different proposition from their workplaces, leading to an uneven recovery across primary and secondary offices.
In both New York and San Francisco, there are parts of the city experiencing high vacancy rates, focused on the downtown areas. However, prime offices have endured in their appeal as occupiers look for high-quality space in line with new workplace strategies.
While ongoing economic uncertainty has made clients more cost-conscious and cautious about capital expenditure, the market for fit-out remains busy overall, with a mixture of consolidation and reconfiguration activities. The increased demand for workplace amenities is driving up prices for fit-out, with employers looking to encourage staff back into the office.
A range of major campus developments are underway in the US – Netflix, for example, is investing nearly a billion dollars in a new hub in New Jersey. However, fewer of these campus developments are kicking off compared to before the pandemic. This is reflective of recent turbulence in the technology sector, which has traditionally spearheaded many of these large-scale projects. Houston is seeing increased demand as some petrochemical companies look to re-centralise operations. Labour costs are lower in this market as compared to primary markets on the East and West Coast, driving down overall fit-out costs. Some companies are looking to cheaper, secondary markets as possible sites for main campuses and headquarters as the talent pool expands outside primary US cities. The pandemic has led to accelerated migration to secondary cities which offer cheaper cost of living and a different lifestyle proposition. This has encouraged busier fit-out activity in markets such as Austin and Dallas in Texas, for example, with companies investing in local hubs to absorb the incoming talent.
APAC - US$/ft2
APAC - US$/m2
As new workplace strategies are put in place, we are seeing clients accelerate their fit-out projects across Asia-Pacific (APAC), adding to already buoyant demand. However, the industry is facing material and labour shortages, causing costs to spiral upwards as organisations compete for resources.
Tokyo, Sydney, and Singapore have the largest average costs per m2 in the APAC region, with a concentration of global organisations driving demand for high-specification fit-out, which in turn has pushed up costs across these markets as a whole. In Singapore, this trend is reflected in relatively narrow differences between the costs for low, medium, and high specifications as supply chains across the board are seeing capacity challenges. Fit-out costs in Japan remain high due to the lack of competitive tendering with a handful of contractors monopolising the market and some landlords selecting their preferred contractors.
Meanwhile in Hong Kong, where labour costs are among the highest in the region, there is a talent shortage and supply chain bottlenecks due to the high fit-out demand. India’s fit-out market differs across primary and secondary locations. In Mumbai, where land value and rental costs are high, corporate space is predominantly used for client-facing purposes. Offices tend to occupy smaller footprints and frequently undergo light refurbishments to maintain a modern look and feel. Larger scale fit-out activity is concentrated in lower cost hubs such as Bangalore, Hyderabad, and New Delhi where it is not uncommon to see fit-out and campus development activity at over one million square feet in size for major blue-chip corporates. In Australia and New Zealand, there continues to be general uncertainty in the occupier sector. For some businesses, this is leading to short-term solutions being implemented, including a higher degree of light touch refreshes, adaptation of existing fit-outs, and companies pushing out the initial proposed life of a fit-out within existing premises. From a market perspective, there are variances city-to-city. Brisbane continues to see high competition, with vacancy rates dropping. In Melbourne, there’s been a trend towards the average size of office project decreasing. Sydney has seen a slowdown in the number and size of projects coming to market, as large companies look to re-evaluate their existing portfolios.
© 2023 Turner & Townsend