Evolving workplaces drive demand for less traditional fit-out styles

Shanghai, 19 November 2019 – According to the latest research from real estate and investment management firm JLL (NYSE: JLL), the average office fit-out costs in the Asia Pacific region have risen by 4.2% year-on-year to USD 953 per sqm. Tokyo continues to be the region’s most expensive market for fit-outs for the third year. In Greater China, Hong Kong is by far the costliest city (USD1,289 per sqm), followed by Taipei (USD 993 per sqm), with Shanghai (USD 911 per sqm) and Beijing (USD 878 per sqm) a little further back.

Titled Asia Pacific Fit-Out Cost Guide 2019/2020 – JLL’s latest research combines data from 29 APAC cities and provides analysis and prediction of the trends, opportunities and impact of locations on office fit-outs in the region. It highlights that rising costs are being driven by labor shortages, increased demand for construction and higher material costs. However, scope for savings exists, as changes in the way people work allow for efficient use of space. YC Mak, Director of Cost Management, JLL Asia Pacific points out, “Evolving workplaces will drive demand for less traditional fit-out styles as organizations seek to provide engaging work environments. We find that more and more companies favor these more progressive open-plan office styles. Compared with traditional fit-outs, they have more flexible designs and cost nearly 23% less.”

Fit-out costs have varied widely

In 2019, the average fit-out costs in APAC hubs showed an upward trend, though with notable disparity among some of the major markets. Tokyo remains the region’s most expensive market for fit-outs for the third year, with the average fit-out cost at USD 1,825 per sqm. Major global events in Japan, such as the 2019 Rugby World Cup and the 2020 Olympics, continue to fuel a construction boom that has driven up fit-out costs; A labor shortage has also contributed to the increase. On the other hand, Indian cities have the lowest fit-out costs in the region, with the average cost in Ahmedabad at only USD 593 per sqm. This is mainly because large-scale campus development and large buildings continue to improve cost-effectiveness.

When it comes to the Greater China region, Beijing will see continued cost increases, driven by legislation on the location of manufacturing facilities and rising transportation expenses in mainland China. Meanwhile in Hong Kong, the city’s political situation has already impacted the retail and hospitality sectors and is also expected to have a knock-on effect on other sectors, including office leasing. With repercussions likely to continue into 2020, the true impact on fit-out costs in the city remains to be seen. 

Chart 1: Fit-out cost index (Hong Kong is used as the baseline = 1.0)

Progressive fit-outs are becoming more commonplace

The research defines three fit-out styles, according to various office design requirements -  the progressive style (a modern open  floor plan without enclosed offices, offering a wide variety of furniture types to suit daily work tasks), the moderate style (a variation on the progressive style with a limited number of management offices, which emphasizes on traditional workstations while offering areas for collaboration), and the traditional style (a traditional layout where individual offices dominate the floorplate, balanced by standard workstations while limiting the space for hot desks and collaboration areas).

Table 1: JLL’s office fit-out matrix of 2019/2020

David Cole, Head of Project & Development Services, JLL China points out, “In JLL’s latest Future of Work survey, many Corporate Real Estate (CRE) leaders ranked collaboration and flexibility as the two most desired outcomes in driving human experience in the workplace. Progressive fit-outs are becoming more commonplace throughout the region, as organizations increasingly appreciate their ability to provide fluid, cooperative, and engaging work environments for overall better employee experience, helping to attract and retain talent.”

There are also cost benefits to such new and innovative office designs, which the guide highlights while listing the average cost by the fit-out type. On average, those progressive office styles cost USD 219 less than traditional fit-outs with largely enclosed offices.

Builders’ work continues to account for the largest part of costs

Builders’ work accounts for 46% of the fit-out costs and continues to be the largest part (regardless of style). Mechanical and electrical (M&E) services come next, accounting for just under one-third of costs. The complexity and quality of design, as well as office style, will shift the breakdown of costs. On average, moderate and traditional fit-outs cost 6% and 23% more, respectively, than progressive fit-outs (excluding furniture). The additional costs largely relate to more mechanical ventilation requirements, along with work to existing fire and life-safety systems that service enclosed spaces. 

Furniture is also an important cost driver, depending on specifications. The overall furniture costs can be adjusted by changing configurations, such as using an agile workspace instead of more traditional furniture. Meanwhile, the type and quality of office furniture is critical for optimizing the effectiveness of a workplace style and achieving the expected employee performance.

It will cost more to fit-out an office in 2020

Slowing global trade and employees’ changing expectations for office space are two major factors affecting the outlook and trends of office fit-out in the APAC region. In surveying JLL’s network of offices across Asia Pacific, the guide found that 79% of the market leaders expect office fit-out costs to increase in 2020 and beyond. “A shortage of labor in high-demand markets will primarily drive an upward trend in fit-out costs”, says Cole. Other factors driving the increase include rising transportation costs and reliance on imported materials subject to import duties, which can also increase the time it takes to complete a fit-out. “As Asia Pacific’s geopolitical situation rapidly changes, the outlook for costs will continue to shift,” sums up Cole.