Three factors that impact fit-out
Shorter leases, talent, and sustainability are shaping fit-out decisions and spend profiles.
1
Configuring costs for shorter leases
The top priority for most occupiers right now is flexibility.
Dynamic working patterns have made committing to headcount and estimating long-term space utilisation much harder. Factoring in economic headwinds and potential future downturns, clients are looking to remain adaptable. This trend is playing out in shortening lease cycles. Decision-making rounds on office take-up requirements now typically happen every five to eight years, rather than every 10 to 15 as they did in the past. From a fit-out perspective, this has major implications for investment, with weakening commitment to capital expenditure to support long-term strategies.
A shorter lease does not necessarily equate to a lower specification fit-out but it does focus clients’ minds on achieving maximum value for money. As leases get shorter, identifying where the best point in the programme is for targeted investment is critical. For example, technology upgrades may be planned at mid-points in lease cycles to keep up with the pace of change. Flexibility in workspace is vital in the current market and businesses need to make sure they can reconfigure their space at the most effective juncture, on a carefully costed basis. For some companies, this desire to remain flexible is leading to increased investment in moveable partitions and non-fixed furniture items – allowing them the scope to reconfigure the office environment without requiring a full scale refurbishment or office move.
2
Investing in talent through fit-out decisions
The emphasis on attracting and retaining talent has grown in recent years as many industries have faced talent shortages.
Many companies see the quality of their workspace as a key avenue to recruit the best candidates and keep hold of them long-term. Increasingly, employees are looking for workspaces that foster productivity and social collaboration, while also providing many of the comforts and flexibility of home. In this context, investment is not necessarily being targeted to improve the general aesthetics of a workplace but is more being directed to collaborative and practical elements, such as spend on coffee/refreshment areas, adjustable desks, quiet booths, and AV equipment for conferencing – detailed costs for some of which can be found in the spotlight markets section of this report. It is clear that the expectations of the current generation of employees are different to the past. Espresso machines, breakout areas, state-of-the-art technology and social spaces are now part-and-parcel of what workers are looking for in their office space – and companies must aim to satisfy these demands to stay competitive. Despite this pressure to invest, clients are also carefully watching their budgets. The sample dataset in this report gives clients visibility over how they can set their early capital investment based on targeted investment, around spatial demands, and functional requirements.
Employers are keen to maximise productivity, while also promoting active communication and a strong sense of company culture – and, to do this, they need to understand the differences between in-person attendance versus home working. To gain a tangible and quantitative view, companies must continue to invest in smart systems and regular gathering of employee feedback. This should enable a clearer understanding how the office can better facilitate activity-based working. Space allocation ratios have already started to shift from being weighted towards fixed desking, to now being geared towards a greater allocation of meeting rooms, breakout areas and canteen space. As more data becomes available on utilisation and behaviours, this may lead to some companies looking to rebalance the hybrid working models, which emerged from the pandemic-era. In some cases, this is already happening, with recent high-profile announcements from leading technology companies and banks that workers are required to be in the office at least three days a week. Moving into 2024, a great deal of uncertainty remains. If the outlook worsens and there’s a loosening in the job market, we may see more companies mandate a more frequent return to office-based working. The office environment must be fit and ready to accommodate this. Many workplaces may not have experienced full capacity since before the pandemic, and in the meantime, headcount may have expanded, or staff roles changed.
3
The need for data to drive sustainability
The drive towards sustainability is being felt increasingly strongly in the business world. The pace of this progress varies across more and less mature markets, but this is increasingly a global concern for companies and staff.
Occupying the right workspace is crucial for organisations looking to meet their environmental, social and governance (ESG) objectives. If the building being occupied does not meet expected environmental performance standards, companies will seek alternative space which is in line with their sustainability agenda. In recent years, we have seen many clients take the decision to move to centralised campuses or HQs in order to accelerate their green goals by consolidating into premium quality space with top-rated NABERS, BREEAM, LEED, Green Star, or other accreditations.
We anticipate an acceleration in the trend for tenants to take space from the landlord at shell and core to avoid the negative carbon impact of stripping back from a generic CAT A fit-out. This is becoming commonplace in markets such as the UK and North America. It remains rare in Asia for the time being but will likely be the direction of travel. In recognition of this, our report includes costs from shell and core, rather than CAT A. Data is becoming invaluable in driving green decision-making in markets like the UK, where it is more readily available. Occupiers are now able to assess the carbon impact of their material selections and design decisions, which can be translated back into business design standards to help them reach their goals. We expect other markets to follow this trend as the data, tools and means of measurement available start to mature. Digital tools like our own Embodied Carbon Calculator (ECC) allow clients to explore different scenarios and make informed decisions on the carbon impact of their overall fit-out approach. Having full visibility of both cost and carbon implications simultaneously will help clients to execute their strategies in line with budgets.
Conclusion
Navigating new dynamics for fit-out
The pandemic-era led to a rebalancing towards more people-centric businesses and workplaces. People's values have changed, and the workplace needs to reflect this. All businesses must build a culture where people feel connected. In this context, companies need to take a holistic and people-first view of the impact of business decisions and capital investments. At the same time, they also need to respond to volatile costs, geopolitical uncertainty and climate change – causing competing demands. Increasing complexity and shifting priorities makes it vital that clients have the necessary data to make informed decisions while understanding the cost impacts of targeted investments. Evolving market trends, such as shorter leases and the talent agenda, are impacting specification decisions, alongside the requirement for organisations to achieve their ESG commitments through their workplace design standards. Over the coming years, we expect to see continued change in the occupier sector, as businesses look to re-evaluate their hybrid working models and implement new workplace strategies – creating workspaces that have the adaptability to respond to a dynamic business landscape. Through their fit-outs, businesses will create workspaces that work harder, are more flexible and ultimately embody their purpose, vision and values – so they can face the future with confidence.
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