23037_PDS Office Fit-out Guide_v4

EMEA OFFICE FIT OUT COST GUIDE 2023

A FOCUS ON PRICING

KEY HIGHLIGHTS

Perhaps more tellingly, the Baltic Dry Index, which is a measure of the cost to bulk-transport dry materials, has eased 59% from its 2021 peaks. Consequently, shipping costs from China/East Asia to the Mediterranean have decreased 71% y-o-y, while shipping costs on the North America to Northern Europe route have eased 45% from the near-term peak in October 2022. Notwithstanding this welcome relief, the majority of pricing still remains above longer-run averages (Figure 2).

In line with this, fit out costs across the region have risen by an average of 9% (in euro currency) year-on-year, though with little change across the proportionate share of cost splits (A/V, furniture, Fit out and professional services). While this represents a significant cost increase over the year, it should be noted that the increase is broadly in line with the peak rate of inflation encountered in the U.K. and euro area. It should be noted that these figures are an average across the region and considerable variability exists at the market (and individual project) level, with average fit out costs rising by up to 25% in Spain. The outlook on pricing is somewhat mixed. 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 then to slow to 2.7% in 2024. Together these factors mean that input costs are likely to remain elevated in the near term, resulting in contractors becoming more 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.

Throughout 2022, inflation has proven to be more persistent that many economists originally envisaged. This has been especially prevalent in Europe where year-on-year energy cost increases reached in excess of 55%. This has inevitably forced downstream pricing higher, with sharp increases in fuel costs being one of the main underlying drivers as increased transport costs have added to pricing all along supply chains. For the most part, prices for key commodities have declined from their peaks – global oil prices are down approximately 20% from June 2022, though energy pricing is down marginally less. Metals pricing (including aluminium, copper, tin and lead) are down by a similar 23% in aggregate, while timber pricing has eased 14%.

Supply chain stress easing as COVID impacts lessen and demand declines.

Inflationary pressure at or near peak but will take time to fully abate.

Contractors are taking a more risk averse approach and including greater safety provisions.

FIGURE 2:

INDEXED MATERIAL PRICING (Q4 2019 = 100)

250

200

ENERGY

150

OIL METALS

100

50

0

Q4 2022

Q4 2021

Q3 2022

Q3 2021

Q2 2022

Q2 2021

Q1 2021

Q1 2022

Q4 2020

Q3 2020

Q2 2020

Q1 2020

Q4 2019

Source: Moody’s Analytics

PERNOD RICARD FIT OUT, 7 CHISWICK PARK, LONDON W4, DELIVERED BY CUSHMAN & WAKEFIELD PDS

PERNOD RICARD FIT OUT, 7 CHISWICK PARK, LONDON W4, DELIVERED BY CUSHMAN & WAKEFIELD PDS

6

7

Cushman & Wakefield