Sydney now the priciest Asian city for office fitouts
Sydney has overtaken Tokyo to become the most expensive city in Asia to fit out an office. Shortages of skilled resources, material price increases and supply chain disruption are driving inflation in a construction industry that struggled to attract sufficient people even before the pandemic.
The NSW capital, with an average fitout cost that has risen to $2765 per square metre, has knocked the Japanese capital – where the average cost of an equivalent project was $2708 per square metre – after five years at the top of the regional list compiled by commercial real estate agency JLL.
The 14.8 per cent year-on-year jump in average fitout costs across Australia outpaced the 4.5 per cent average growth over the region that took in India, Thailand, Vietnam, Malaysia, Singapore, Indonesia, the Philippines, South Korea, China, Hong Kong, Taiwan, Japan and New Zealand.
The effects of a tight labour market, in particular, were driving up costs in Australia as project volumes surged beyond pre-pandemic levels, JLL’s managing director for project and development services, Andrew McCrossin, said.
“Across the country, strong client sentiment has driven an increase in project volume over the last 12 months which, in conjunction with regional and global headwinds, have led to significant inflationary pressure on construction and office fitout costs,” Mr McCrossin said.
“Measures to rein in costs have been slowed by global headwinds such as ongoing geopolitical tensions exacerbating the cost of energy and constraining supply chains already under pressure. Damage from weather events – such as flooding in many regions of Australia in 2022 – have further stressed construction costs.”
Demand for fitouts is booming, as building owners reposition their assets to attract tenants, or work with occupiers to boost the attraction of a communal workplace and entice staff back to the office.
The Singaporean owner of Melbourne’s 13-level 673 Flinders Street office building spent $80 million on an extensive refurbishment last year to turn the B-grade building on the northern edge of the Yarra River into A-grade accommodation and has secured Wesfarmers Health as a tenant.
The report showed the average fitout cost in Australia last year to be $2662 per square metre. Canberra came a close second to Sydney – and also ahead of Tokyo – with an average cost of $2761, followed by Adelaide ($2703), Melbourne ($2676), Brisbane ($2554) and Perth ($2522).
Average prices ranged from $1997 per square metre for a base specification open floor plan with no enclosed offices, to $4624 per square metre for a high specification traditional office.
Builders’ labour accounted for the highest proportion (43 per cent) of fitout costs, while mechanical and electrical work remain the second-largest component (26 per cent), JLL said.
Fitout cost increases will moderate over the next 12 months, JLL says in the report.
“Further price increases will not be sustainable, and many expect the market in Sydney to normalise and the current rate of price increases to moderate amidst talk of a recession,” JLL’s Australia Fit-Out Cost Guide 2022/2023 report said.
“The situation is similar in Melbourne with the market stabilising as pent-up demand washes through and activity starts to slow.”
