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Costs

Office occupiers told to expect higher fit out and servicing costs globally

Savills analysis of Q1 22 Prime Office Costs (SPOC) in global markets around the world has shown that higher fit-out costs, reflecting material and labour cost inflation, are beginning to creep through in some office markets.

While overall there has been no movement in the position of cities in the rankings since the end of 2021, says Savills, some markets are experiencing rising costs in fitting out space and increased service charges.

According to Savills this trend is most evident in Chinese cities, Kuala Lumpur, and in North American cities at the moment, but other markets across the globe are set to follow suit in the coming quarters.

Jeremy Bates, head of EMEA occupational markets at Savills, said: “From higher prices for raw materials to increasing labour costs to keep up with rising inflation, it’s likely that most office occupiers will have to pay more to rent and fit-out their space in global cities this year.

“Whilst rent is the usual indicator of increasing cost, service charge rises and higher capital expenditure will represent the largest contributions towards increased occupier costs in the coming quarters. Even in markets where landlords tend to pay for fit-outs, these costs will eventually be passed on to occupiers later in the form of higher rents. Nonetheless, for many office occupiers the expense is unlikely to deter them from selecting top quality spaces in prime central business districts to attract and retain talent, although they are carrying out extensive data gathering exercises on how employees are using space before making decisions on exactly how much to take.”

Savills says that overall headline rents have, on average, remained flat in local currencies and the increasing additional costs have yet to appear across many markets, according to the international real estate advisor, with fluctuating exchange rates due to increased uncertainty producing the appearance of declining costs for many markets in Dollar terms during the first quarter of 2022, while in local currencies they have broadly remained consistent with Q4 2021.

Read the Q1 2022 edition of Savills Prime Office Costs (SPOC)

CLC launches tool for COVID-19 cost assessments

The Professional Practice Task Group for the Construction Leadership Council (CLC) Covid-19 Task Force has published a methodology for assessing and reporting the cost implications of disruption due to the pandemic.

Construction clients and contractors rely on accurate cost prediction as the basis of business plans, financial contracts, and commercial control.

The CLC says unprecedented nature of the pandemic is affecting the progress and productivity of existing and future contracts, meaning that the information upon which estimates are usually prepared no longer applies.

The Toolkit acts as a guide to enable better cost forecasting to assist the industry in making informed investment decisions on viability, improving robustness of pipeline and driving long term economic growth.

Simon Rawlinson, Chair of the Professional Practice Task Group said: “The Cost Assessment Toolkit will help the construction industry manage the impact of Covid-19 on existing and future contracts.

“It establishes a standard methodology to incorporate the cost impacts of the virus into estimates, provides clarity on exclusions and through the collection of industry wide data allows clients and supply chains to compare their project costs against an aggregated data set.

“By providing the tools to measure and therefore improve productivity, the toolkit acts as a guide to ascertain and assess project risks and establish viability for the long term.”

To access the tool, click here.

London’s high office space costs leading occupants to move South East…

800 450 Jack Wynn

According to the Annual Occupiers Survey 2016 conducted by the Royal Institution of Chartered Surveyors (RICS), the next five years will see South East-bound office occupiers expanding their portfolios at a faster pace compared to those in the capital.

Produced in association with Savills and EY, the survey found that 20 per cent of UK property decision-makers expect to increase the amount of office space they own or rent in the South East; in comparison to decreasing (seven per cent). In addition, a net balance of 13 per cent more respondents in the South East expect to increase rather than decrease their property portfolio – equating to almost double the seven per cent in London.

RICS director of UK commercial property professional group, Paul Bagust, said of the results: “Among those who expect to expand (41 per cent), more than half cited quality of facilities (57 per cent) as the key driver for selecting their office space. Proximity to transport links and amenities is the next most important (39 per cent), with a third (35 per cent) citing technology and digital connectivity.”

He continued: “The figures indicate those taking on more property are doing so to find better quality spaces, which are better managed, and are equipped to deliver greater value to business – helping with recruitment and contributing to the bottom line. Occupiers are undoubtedly getting smarter about understanding the value good, well-managed premises can deliver.”

Elsewhere, when asked about the importance of location and the quality of workplace premises impacting employee performance and satisfaction, the top five factors recorded in the survey are: pay and benefits (64 per cent); company culture and reputation (62 per cent); proximity to transport links and amenities (49 per cent); flexibility of working arrangements (43 per cent); and quality of premises and facilities (34 per cent).

Forum News: The hidden costs of exhibiting at trade shows…

Without the knowledge of other costs involved, the £2000 stand you’ve just booked at your industry trade show looks like a really inexpensive way of generating new business. But is it really justifiable?

Assuming you have just bought a stand and shell scheme, you will still need to consider the following costs:

  • Show services such as lighting and electrics. These facilities are often controlled by the event organisers and can be costly. Also add on furniture hire, even carpeting. Estimated cost: £500-£1000.
  • Then there’s transportation, moving the whole stand together with any literature and other equipment, all will need to be transported to and from the show with another £500 added on to the bill.
  • Paramount to any trade show exhibition is advertising and other promotional materials which can amount to more than £1000. It’s all very well having a lovely brochure, but be aware of the cost of handing them out.
  • Once the stand and everything else is up and running, your staff will need feeding. Five staff members with breakfast, lunch and dinner over the average three days is not cheap.
  • When the exhibition is finally over, the charges keep on coming with clear up costs. Make sure you take your rubbish and leftovers with you or you may well get charged; and if your site is damaged in any way, it will more than likely result in an invoice.
  • Making sure you acquire an adequate insurance policy, not only for your goods on display, but also liability insurance should anyone hurt themselves while on your stand is crucial. And that’s not cheap either, with an expected £150 or more price tag.
  • You’re not finished yet; personnel is considered as one of the biggest costs of an exhibition. In addition, the extra £1,000 an employer will have to pay staff for longer hours, other costs such as accommodation, food, travel and parking also come into the equation.

Look at all the leads we’ve got…

The mountain of business cards you’ve collected; the dozens of quotations you were asked to supply after the event; the hours of organising them and calculating estimates; these are time consuming – as is following them up.

Then there are the decision-makers you met, or were scheduled to meet. Did they even show up to the event? If they did bother to put on an appearance, did they find your booth; did you get the chance to sit down and talk?