The ins and outs of office fit-outs

Inflationary pressures have played a role in the price upswing, says Doug Phillips, general manager at office fit-out specialist Bowen Interiors. He says the costs are 15 per cent higher than in April 2022.

“Early on, we had massive supply chain issues with freight and that sort of stuff, and while it’s all stabilised, some of those costs are just going to be here to stay,” he says.

“Very few people just go, ‘Okay, well, let’s lower prices now everything’s calmed down.’ They still try and keep their prices up if they can. The cost of labour has also gone up, and wages are a pretty big driver in any economy.”

The aftershocks of COVID-19 continue to influence how much companies spend on office fit-outs. The growing demand for flexible spaces to accommodate hybrid workforces is steering tenants towards creating a variety of settings.

Rooms where workers can collaborate, make presentations, find a quiet corner or hold online meetings are the tip of the iceberg. Premium fit-outs take it to the next level with wellness studios for yoga and meditation, on-site cafes and hotel-style arrival spaces.

“Post-pandemic, the way people are viewing their office and the way they’re utilising their office is not exactly driving the cost up, but it’s driving change,” Phillips says.

“For example, if you’re a finance person and you need to review some reports, you might typically do them in a quiet spot. People often say, ‘Well, there’s no point in driving into the city just to review a lot of paperwork. I’m able to do that at home.’ They go to work when they actually need to have meetings with people, workshop things, and collaborate.

“Workspaces in the office need to be more flexible, so we look at how many different ways we can use a space. We might have a large space with loose furniture – flexible furniture – so you might have a bunch of tables and chairs, and you can push them all together for a meeting. The next day they might be all spread apart for a training event.”

Research by real estate consultancy JLL revealed that the average fit-out cost is $2662 per square metre, with Sydney being the most expensive city for a fit-out in the country, at $2765. Canberra ($2761) and Adelaide ($2703) followed closely, then Melbourne ($2676), Brisbane ($2554) and Perth ($2522).

JLL’s Australia Fit-Out Cost Guide 2022/2023 surveyed corporate real estate leaders across the Asia-Pacific to gather corporate fit-out price information. The results show the average prices range 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 43 per cent of fit-out costs, followed by mechanical and electrical work at 26 per cent.

Between rising prices and demand for contemporary spaces, commercial property landlords find themselves between a rock and a hard place, says Anthony Meola, head of JLL’s project development services team for NSW.

“On one hand, they really need to invest in their assets to get tenants back, but at the same time, there’s a bit of a credit crunch happening, and there’s a lot of valuation shares in the commercial property sector,” he says. “So, at the same time, some landlords might be holding off making those investments to get that work going until they get better clarity on what the leasing situation’s likely to be.

“It’s a real tricky one because a lot of corporate is now pushing staff back to the office, but some pockets of the industry are still resisting that return. So that again, combined with credit availability, is slowing down some landlords.”

But Meola says the future may bring some slight price relief.

“There’s a lot of challenges, particularly in the home building space, and what I’ve found in the past is when particular pockets of the industry get particularly busy, it can take a lot of the labour force out of different areas,” he says.