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Market
update
London fit-out update summer 2016
making the difference
Turner & Townsend 01
Turner & Townsend 02
The London fit-out market remains busy despite uncertainty in
the global economy. An expected peak in lease expiries in
London in 2018 is driving demand, with occupiers seeking to
rationalise their property portfolio and make their space work
harder, particularly with rental prices steadily increasing. A
number of major fit-out projects are coming on line during 2017
which will absorb capacity and result in tier one fit-out
contractors and their supply chain being more selective in their
bidding.
We also see a trend in nearshoring among the major professional and legal
services practices, with support functions being relocated to the regions
where rents are lower, with London used as a central hub for attracting
talent.
In 2015 we saw tender price inflation levels on London fit-out projects at
around five percent due to the surge in demand in the fit-out market. In
2016 this has dipped to around four percent as market supply has caught
up with demand. We expect this to return to around five percent in 2017
as some of the planned major fit-out projects come on line. Some clients
are choosing to procure their main contractor team early on a two-stage
arrangement, often many months ahead of starting on site, in order to
secure resource from the best teams.
London fit-out update
Tender price inflation
5% London fit-out 2015
4% London fit-out 2016
5%
London fit-out 2017
London fit-out update
Turner & Townsend 03
London fit-out market analysis
Turner & Townsend undertook a survey of tier one and tier two suppliers over the summer of 2016, testing market sentiment, expected tendering conditions and expected price rises.
Market outlook
During summer 2016 the general feeling in the fit-out market
has been one of waiting for the fallout of the Brexit vote,
effectively placing a pause on expectations. Notwithstanding
this, there was an expectation that input costs (labour, plant,
materials) would continue to increase after the ‘Brexit’ vote,
regardless of outcome, with few suppliers expecting the market
to cool (eight percent).
The market is buoyant and the short-term impact of Brexit has
led to price increases due to the weak pound, but it is unknown
what the effect of ‘Brexit’ will be in the medium term, and
whether or not market activity will increase or decrease. We
have seen little evidence of schemes being cancelled or put on
hold however, uncertainty in the economy may put off
investors.
Still, London is most active with big projects underway such as
Crossrail and Elephant and Castle redevelopments. However,
regions outside the capital are benefiting from the heat of the
London market, with developers starting to invest in areas
surrounding major cities such as Cardiff, Bristol, Watford,
Oxford etc.
Tendering conditions
▪ Cold:
intense competition, not much work, prices low.
▪ Lukewarm: strong competition, moderate tender prices.
▪ Warm:
moderate competition, moderate tender prices.
▪ Hot:
reduced competition, work easy to get, tender prices
high.
▪ Overheating:
Shortage of builders, minimal competition, prices very high.
The market has plenty of opportunities, but increased foreign competition in London is making work
harder to win, which places increased pressure on tendering conditions. An increasingly active market
place would tend to cause a reduction in pricing levels as firms bid competitively to secure work.
Warmer50%
Staying The
Same42%
Cooler8%
Tier one and two supplier survey: market conditions Turner & Townsend
Cold8%
Lukewarm8%
Warm59%
Hot8%
Overheating17%
Tier one and two supplier survey: tendering conditions Turner & Townsend
London fit-out update
Turner & Townsend 04
The level of contractors and sub-contractor insolvencies has also been fairly subdued of late, lending
some assurance to the surety of fulfilment of works. Evidence suggests that cost increases have
occurred while there is more pressure from contractors to reduce prices. Programmes are getting
tighter and profit margins seem to be reducing, potentially impacting the level of future insolvencies if
this situation persists.
Inflation rates
According to our recent contractor survey undertaken in summer 2016, suspended ceiling systems are
expected to increase the most in the coming 12 months, by 7.5 percent. This is closely followed by
carpenter/ bricklayers at 5.7 percent and ductwork at 5.3 percent. The smallest inflationary increase
appears to be sprinkler systems, appreciating by just 3.7 percent.
Tier two supplier survey: Inflation expectations +12 months Turner & Townsend
London fit-out update
Turner & Townsend 05
Survey return commentary
Fabric systems
We are seeing our costs increase however, there is more pressure from contractors to reduce
prices. Programmes are getting tighter. There are a number of major office fit-outs coming to the
market shortly in London as well as Cambridge, Manchester and Birmingham.”
Audio Visual
We have found during the last quarter that tender activity has slowed and that the marketplace is
very competitive at the moment. We have received some feedback that customers in the City
maybe holding off on making key decisions until after the impact of the EU referendum is clearer
due to the uncertainty of the situation. Overall we have seen major blue chip companies
incorporating av/vc communications within their planning strategies and see the value of investing
in this technology. The technology for digital signage has advanced and we see this as an area of
growth in the future.”
MEP
Buoyant market within central London. Good levels of competition. 2017 and 2018 are forecast to
be very busy in the central London fit-out market. Principle contractors winning two stage work
however they are competitively tendering the M&E packages. Also our downstream sub-contractors
are very busy and are being selective in what projects they take.”
Joinery
There are currently many large projects and we believe there is a shortage of supply to meet the
expectations and high quality requirements of the clients/whole supply chain. In our opinion there
are danger signs in terms of potentially over stretching resource and commitments on jobs due to
pressure from the market and this is a high risk to up and coming projects namely delivery and
quality.”
Contractor
London remains a relatively buoyant market. Levels of opportunity are supporting growth. Sub-
contractors are getting selective as to which projects they target/support. Although there is a
strong level of opportunities, the market is still competitive and competition is high. The sub-
contract market is now overheating for certain trades such as joinery and M&E services. Getting
the market leaders in these trades is now very difficult.”
Key challenges
Lack of competition between supply chain driven by consultant’s preference and reliance on tier one
supply chain. Drives up costs and stifles development of competitive supply chain.
Lead times of specified fabrics are getting longer as stock levels decrease. Additionally, lead times
on VC equipment and supply of smartboards.
Design/client changes, approvals, labour shortages and commitment to place orders on projects.
Overall taking into account all the points raised we believe so much time is being lost which could be
used to benefit delivery and quality of job delivery.
London fit-out update
Turner & Townsend 06
Indicative costs
Cat A
The table below shows indicative costs for a typical developer’s Cat A fit-out, together with benchmark
costs from some of our recent projects.
Item £/ft2
Powder coated perforated concealed grid suspended ceiling
5.5
Medium duty full access raised floor and floor sealer
(with under floor barriers and earthing)
3.5
Four pipe fan coil air conditioning (including units, pipework, ductwork, supply air grilles, power supplies, BMS outstations, wiring, insulation,
condensate drainage etc)
18.0
LG 7 compliant lighting installation (including sub circuits, LCM‟s,
controls and non-maintained emergency lights)
8.0
Under floor power network (from distribution boards , floor boxes at 1: 10 sq. metres)
4.5
Life safety systems (fire alarms, sprinklers)
2.5
Carpet (Heavy Duty Commercial
grade antistatic carpet tiles) on ‘Tackifier’
2.5
Blinds to windows (manually controlled roller blinds)
1.0
Basic Security system and wireways 1.0
Contractor’s preliminaries and OH&P
Prelims
7% OH&P 4%
Total 52.0
Currently a standard developer’s Cat A fit out is benchmarking at around £52/ft2. Price increases are
expected for suspended ceilings in particular, which when coupled with the weak pound is likely to push this figure upwards.
Based on some of our recently procured projects we are seeing Cat A costs ranging from £47/ft2 to £56/ft2,
although there are efficiencies to be had through large volume projects and utilisation of the Shell & Core contractor if already on site.
Cat A benchmarks (£/ft2), central London Turner & Townsend
42
44
46
48
50
52
54
56
58
Project
A
Project
B
Project
C
Project
D
Project
E
London fit-out update
Turner & Townsend 07
All-in capital cost range Cat B
The graph below shows the typical range for fit-out from Cat A to Cat B. Fit outs at the lower end tend
to be more open plan with collaboration spaces and traditional AV solutions. Those at the upper end
have more cellular space, client meeting suites and/ or client dining, or higher end AV solutions.
Cat B fit-out benchmarks
The table below shows a selection of Cat B fit out costs from developer’s Cat A, together with the
overall duration on site. Costs are out-turn costs re-based at 2Q16 and exclude professional fees,
furniture, and data cabling/ client IT.
Project Ft2 £/ft2
(Cat B) Weeks on
site
Project A, Central London 86k £88 21
Project B, Central London 205k £103 34
Project C, Central London 60k £113 35
Project D, Central London 491k £118 61
Project E, Central London 400k £156 52
Project F, Central London 56k £158 22
Project G, Central London 45k £167 16
0 50 100 150 200 250 300
Low
High
Fit Out Fees Furniture Data Cabling E/O Dealer Floor
Turner & Townsend 08
About Turner & Townsend
We are an independent professional services company
specialising in programme management, project
management, cost management and consulting across
the real estate, infrastructure and natural resources
sectors.
With 97 offices in 41 countries, we draw on our extensive
global and industry experience to manage risk while
maximising value and performance during the
construction and operation of our clients’ assets.
© Turner & Townsend Cost Management Limited. This content is for general information purposes only and does not
purport to constitute professional advice. We do not make any representation or give any warranty, express or
implied, and shall not be liable for any losses or damages whatsoever, arising from reliance on information contained
in this document.
It must not be made available or copied or otherwise quoted or referred to in whole or in part in any way, including
orally, to any other party without our express written permission and we accept no liability of whatsoever nature for
any use by any other party.
Our team
Colin Wood
Director
t: 44 (0) 20 7544 4136
Kristoffer Hudson
Economic Analyst
t: 44 (0) 113 205 4832
