Norfolk Commercial, a boutique commercial property agency specialising in providing bespoke services to sophisticated investors, SMSF trustees, commercial property syndicates, family offices, and institutional investors, offers insights into the challenges and opportunities in the current commercial property market.
One aspect that warrants attention is the cost of office fit-outs. According to a recent report, the cost of office fit-outs has risen by an estimated 15% in the past 12 months. This escalation is attributed to shortages in the availability of tradespeople and supply-chain issues that emerged during the pandemic, compounded by strained trade relations with China and the political situation in Ukraine. While some of these issues have since stabilised, the costs have remained high.
Doug Phillips, General Manager at Bowen Interiors, highlighted that the early days of the pandemic saw significant supply chain issues, particularly concerning freight. Despite stabilisation, these costs have not subsided, partly because the labour cost has increased significantly. This is an essential consideration for investors and landlords, who must now account for higher prices when planning renovations or new developments.
Additionally, the expectations and requirements for office spaces are evolving. The pandemic-induced shift to remote work has led to a growing demand for flexible spaces that accommodate hybrid workforces. Tenants increasingly seek offices with rooms that allow collaboration, presentations, quiet workspaces, and online meetings. Moreover, premium fit-outs now include wellness studios for yoga and meditation, on-site cafes, and hotel-style arrival spaces. Phillips explained that this transformation is not necessarily driving the cost up but is certainly driving change.
Real estate consultancy JLL conducted research that revealed that the average fit-out cost is AUD 2,662 per square meter. Builders’ labour accounted for 43% of fit-out costs, followed by mechanical and electrical work at 26%.
This environment poses a conundrum for commercial property landlords, as they find themselves navigating between rising prices and the demand for modern spaces. Anthony Meola, head of JLL’s project development services team for NSW, emphasised the dilemma landlords face, who need to invest in their assets to attract tenants but are also constrained by credit availability and valuation uncertainties in the commercial property sector.
However, there is some potential relief on the horizon. As the industry begins to recover, trades are becoming more available. It remains to be seen whether this increased availability will contribute to a decrease in fit-out costs.
In conclusion, sophisticated investors, landlords, and stakeholders in the commercial property sector need to be acutely aware of the evolving trends and rising costs associated with office fit-outs. Navigating these challenges requires informed decision-making and strategic planning. At Norfolk Commercial, we provide tailored solutions and expert advice to help our clients adapt to the changing landscape and maximise their investments in the commercial property market.
Please do not hesitate to contact us for comprehensive assistance and further information on how Norfolk Commercial can help you navigate the ins and outs of office fit-outs.
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