From the high-cost cities of Tokyo, Seoul and Sydney, to the low-cost cities of Manila, Jakarta and Bangalore, office outlay varies considerably. But what are some of the factors impacting fit-out costs in the region?
Our latest research indicates that fit-out cost per square foot in Asia Pacific—excluding furniture charges—ranges from US$50 to $165. This cost compares with the United States and Canada, where charges are between US$140 and $203. In Europe, you’d expect prices between US$44 to $97.
For companies expanding within Asia Pacific, who are working with a fixed capital expenditure budget, being aware of trends and geographical nuances can help avoid costly mistakes. Let’s take a closer look.
Tokyo tops this year’s list as the most expensive city, where costs are as high as US$165 per square foot. Supplier shortage, an aging labour market, and the 2020 Tokyo Olympics are significant drivers in increasing construction costs pushing prices up by 25 percent year-on-year in US dollar terms; or up to 16 percent in yen, according to YC Mak, JLL’s Director of Cost Management in Asia Pacific. “This trend is likely to continue and will fuel further upward pressure on costs in the near term”.
In contrast, the low labour cost and cheaper materials in Bangalore—known as India’s “Silicon Valley”—helps keep prices down. Charges there are only US$50 per square foot, which is the cheapest in the region despite their expressive approach to office fit-out reflecting local culture and their preference for bright colors, adds Mak.
And multi-national corporations are typically taking large floor plates across multiple-levels. They have relatively denser layouts with plenty of benching and a focus on providing support functions. All this drives the cost per square foot down.
The Chinese Government’s new air quality control measures have restricted construction and manufacturing activities across Beijing’s six major districts for the winter months. This is impacting returned tender prices, as contractors have had to source materials from alternative suppliers outside the controlled areas. These additional costs have increased fit-out charges across multiple trades, in some cases by up to 20 percent, Mak explains. Future winters may not have the same measures imposed so costs may lower.
Asia Pacific is consistent with most global markets where architectural works account for the largest portion of office fit-out cost. These charges, usually around 45 percent, cover non-structural works and internal division walls, doors, finishes to walls, ceilings and floors, and built-in joinery and signage.
Mechanical and electrical works—which cover air conditioning, lighting and power systems—form the next biggest cost category at 33 percent on average of the total cost. AV and IT, and data installation form around 7 percent of the total cost; but as smart/intelligent buildings become more prominent in our cities, we’d expect the investment in data installation and supporting infrastructure to increase.
Furniture costs per square foot is highest in Auckland, followed by Sydney and Tokyo—and cheapest in Kuala Lumpur.
We calculated our costs based on actual charges in each market, considering multiple drivers such as agreements with suppliers, varying workplace strategies, nature of business, and import and freight fees.
Exchange rate volatility has had a notable impact on fit-out costs over the past year across Asia Pacific. For example, in Singapore and Bangkok, domestic fit-out costs for local businesses fell by as much as 7 percent and 11 percent, respectively. However, for multi-national companies fitting out offices in these locations, the cost in USD terms climbed due to the local currency strengthening against the greenback.
Despite the differences in costs, some themes are consistent across cities within Asia Pacific. Notably, the next generation of companies are expanding rapidly, and many are emulating the practices seen in more mature markets with the adoption of co-working spaces as well as smart building technologies.
Asia Pacific remains a focus for multi-nationals across the world, particularly in tech, pharmaceuticals, and manufacturing. And whether their business strategy involves M&A, JVs, diversification or consolidation, the region is still providing plenty of growth potential. “The demands for headquarters, offices and plants in the region will match sector growth”, says Mak. “However, with pressure on capital expenditure, companies will need to make some smart decisions on where and how they set up offices and how they approach office or building fit-out projects,” advised Mak.