Commercial Real Estate News
Sydney Now Most Expensive City for Office Tenant Buildouts in Asia Pacific
Hong Kong office fit-out costs rise 8.3 percent in 2022
Hong Kong's average cost of designing and building workspaces raised 8.3% to USD 130 per sq ft (around HKD 1,015 per sq ft) in 2022, according to JLL's Asia Pacific Fit-Out Cost Guide 2022/2023. The increase in cost has slowed compared to the 9% growth in 2021.
Construction prices in Hong Kong grew from USD 120 per sq ft in 2021 to USD 130 per sq ft this year, and competition in the construction market has led to margin compression that helps in minimising the impact of price increases.
Ryan Wong, Head of Project Development Services at JLL in Hong Kong, said: "Signals are mixed in Hong Kong as a recovery in consumption takes place against the backdrop of elevated global inflation and tightening financial conditions which are slowing global demand. Hong Kong's construction prices have remained steady over the previous years despite pandemic related cost drivers due to competition fueling margin compression."
"Looking forward, we believe the cost will continue to rise in 2023. The recent easing of border restrictions is expected to ease pressure on construction costs and potentially reduce shipping costs. However, since the border between mainland China and Hong Kong has not opened yet, there are uncertainties in the logistics of construction material to Hong Kong and the cost has increased as a result. The tenants should plan ahead for the new workspaces and adopt flexible office design to have better control over cost and construction time," he added.
The average cost to fit out workspaces increased by 4.5% year-on-year in 2022 across the Asia Pacific region. The biggest price increases were seen in Australia, Singapore, Malaysia and the South Asia markets. For the first time in half a decade, Sydney has overtaken Tokyo as the most expensive market in Asia Pacific for office fit-outs, with the latter having held the top ranking for five consecutive years.
According to the report, price increases in most markets were due to factors such as rising fuel and raw material costs, which influenced construction pricing in 2022. Supply chain disruptions and strict zero-Covid policies in mainland China have also impacted production rates, timing and material costs. At the same time, progress has been slowed by ongoing geopolitical tensions which have exacerbated energy and supply chain constraints, fuelling a second wave of price increases.
Martin Hinge, Executive Managing Director, Project Development Services, JLL Asia Pacific, said: "While most markets have returned to normality, many continue to face challenges that can be attributed to the pandemic. We expect these factors to continue to drive construction price inflation over the next 12 months."
With the continued hike in interest rates globally and financial instability of contractors and sub-contractors in many markets, there is further risk of consolidation and a reduction in competition. Meanwhile, the competition for talent intensifies and access to skilled and semi-skilled labour remains critical.
Hinge added: "Current levels of price inflation are unsustainable, but as the supply chain stabilises and the increased risk of occupiers deferring projects leads to a consequent softening of demand, we expect that fit-out cost increases will moderate towards the end of 2023 when current challenges are expected to unwind. This is barring another significant economic event that could flatten or reverse current trends."
The continued quest for sustainable and employee-focused workplaces
Despite the price increases, JLL believes that companies will continue to invest in better quality workspaces to drive collaboration, attract and retain talent, and enhance physical and mental health and wellbeing, and what has been increasingly apparent is the prioritised investment on sustainability features and fittings.
"With collaborative working as one of the primary purposes of office space, JLL is committed to helping organisations transform their workspace to encourage both new and current employees to spend time in the office. In a hybrid working world, quality and employee-focused workspaces can be the difference that organisations need to get ahead in the talent war," said Hinge.
According to the Future of Work survey by JLL earlier this year, 80% of clients are spending more to improve sustainability ratings over the next 12 months, up from 70%. Meanwhile, spending on fit-out components such as partitions appeared to reduce year-on-year, as offices continue to evolve towards open plan spaces to drive employee collaboration.
As organisations strive to reimagine their workplaces to adapt to the changing role of the office and reprioritise employees' well-being, we can expect to see greater commitment and spending on spaces and design elements that are instrumental in enhancing employee engagement - while simultaneously meeting climate targets," concluded Hinge.
