Office Fit Outs Have Become More Expensive And Uncertain
As companies experiment with hybrid work, fit outs will increase, creating even more demand for materials and labor.
Increased delays, more uncertainty and higher costs appear to be the name of the game for office fit outs across the US this year, as supply chain challenges continue to plague deliveries.
That’s according to a new fit out guide from Cushman & Wakefield, which notes that “there does appear to be some light at the end of the tunnel” as the supplier delivery index, which measures manufacturer delays, has been declining since mid-2021.
The supply chain stress indices for both the US and China ended last year up 40% over pre-pandemic levels, according to the Federal Reserve Bank of New York. All the while, construction starts have been posting above-average numbers, led by industrial and residential. But office construction also remains elevated, with 118 msf in the pipeline—a figure that’s 43% above the 20-year historical average.
And as occupiers rethink their return-to-work strategies, office space usage will increase, according to Cushman & Wakefield experts.
“We expect organizations will expand their piloting and testing of different types of layouts related to hybrid work,” the fit out guide states. “This is likely to increase the amount of fit out and office space construction activity in the coming quarters, creating even more demand for materials and labor.”
Just 2% of contractors surveyed by Cushman believe that lead times had remained constant; the rest say lead times increased slightly (16%) or significantly (82%) over the previous six months. And a fourth of those surveyed said they hadn’t experienced lead time increases at all.
Contractors are also more optimistic about material lead times, with half of those surveyed saying they expect lead times to continue to increase “significantly” and 12% saying they expect no further growth.
“Experienced project development teams are required to ensure delays caused by material and labor challenges are planned for and mitigated,” the report notes.
Across all markets Cushman surveyed, electrical is the largest category for fit out costs, accounting for 21%, followed by mechanical at 18% of the total. In cities like Charlotte, Raleigh, Los Angeles and San Francisco, electrical accounts for more than 26% of the total. And mechanical costs account for more than 20% of all costs in fourteen markets across the US and Canada.
Drywall, acoustic and carpentry account for 12 to 15% of total costs, with highs of 20% in Toronto and 17% in Montreal.