UK and German cities top the list of the most expensive European regions to fit out an office as occupier expectations for their workplace continue to increase following the covid-19 pandemic.
According to new data from Cushman & Wakefield, fit out costs across Europe have risen by an average of 9% over the last year with high-quality fit outs now averaging €2,214 per sq m ‘all-in’.
While this represents a significant cost increase over the year, the rise is broadly in line with the peak rate of inflation encountered in the UK and euro area, Cushman & Wakefield noted. ‘High fit out costs in the UK and Germany are being further driven by elevated expectations in these regions in terms of design sophistication, technology solutions and quality of fit out.’
Unsurprisingly London tops the expensive fit out chart at €3,790 per sq m for a high quality all-in job. London is followed by Manchester and Birmingham. Next is Hamburg, Glasgow, Munich, Dublin, Luxembourg, Frankfurt, and Berlin. All of these cities are more expensive that the average in Europe.
Over the past 12 months the primary issue affecting fit out costs has been surging inflation driven by significant supply-demand imbalances resulting from stressed supply chains, tight labour markets and the conflict in Ukraine.
The outlook remains mixed, said Cushman & Wakefield.
Although supply chain stress continues to be resolved, there are still bottlenecks for specific products, mainly electronics, and labour costs remain high.
Inflation in the euro area is forecast at 6.2% in 2023 but is then expected to slow to 2.7% in 2024.
‘These factors mean that input costs are likely to remain elevated in the near term, likely resulting in construction contractors remaining risk averse and including greater safety provisions to mitigate the current volatile conditions.’
‘However, on the opposite side of the ledger, the economic slowdown has resulted in a more cautious approach to capital expenditure by occupiers, which together with the current trend of generally downsizing office footprints, means the size of the market has shrunk. In turn, this is leading to increased competition to win projects and is therefore placing downward pressure on tender pricing as margins are shaved further.’
Nic Wilkinson, chair of project & development services EMEA, said: ‘Three years on from the Covid-19 pandemic, delivering office fit outs that reflect current working strategies has never been higher up the agenda.’
‘Corporates are taking huge strides in advancing workplace strategies and the importance now placed on sustainability and DE&I criteria cannot be understated as more and more firms pivot towards accountable goals in this area.'
‘Together, this drives demand for best-in-class space of which there is a considerable lack of supply and sizable cost and logistical considerations.’
Wilkinson added: ‘Half of the building stock across Europe is over thirty years old and just 14% has been built or substantially modernised in the last ten years.'
'Over the life of an office building, there may be as many as three or four office fit outs, and with legislative requirements on sustainability becoming more acute, many landlords need to take action on how the environmental costs measure up against the embodied carbon in the building. Occupiers simultaneously need to factor in high all-in costs to accommodate technology and sustainability improvements, though payback periods, especially for sustainability efficiencies, have shortened considerably.’
