Commercial Real Estate News
Hong Kong Office Buildout Costs Rebound 9 Percent in 2021
According to JLL's Asia Pacific Fit-Out Cost Guide 2021/2022, Hong Kong's average cost of designing and building office workspaces has rebounded 9% year-on-year and is now back to the level prior to onset of the Covid-19 pandemic.
The city's average office fit-out cost rebounded to $120 per square foot (HKD 935) this year after it dropped about 8% in 2020. Hong Kong has experienced relative economic and political stability over the past year and the pandemic is contained, which has led to increased confidence, increased business and consequently, higher construction cost.
The research reveals that fit-out costs vary from market to market, ranging from $177 per sq ft in Tokyo, Asia Pacific's most expensive market, to $62 per square foot in Ahmedabad, India. Hong Kong's office fit-out cost ranks the 9th most expensive in Asia Pacific, the same as last year.
Ryan Wong, Head of Project and Development Services at JLL in Hong Kong commented, "The market has recovered and resumed to normal as the pandemic is contained and companies' confidence toward the business outlook has increased. This has supported contractor pricing returning almost back to normal. At the same time, the sharp increase in raw metal material cost boosted the cost of mechanical and electrical (M&E) trades and IT infrastructure."
"An anticipated worker salary review in 2022 is likely to see a more significant uplift to salary benchmarks than previous years, which would likely fuel an increase in labour cost. Meanwhile, the power limitation in mainland China's factories would also affect the cost, and as such, we believe the fit-out cost will continue to rise next year," he added.
According to the report, the average cost of designing and building workspaces has risen 10.8% year-on-year across the Asia Pacific region, with the average fit-out cost per square foot now at $103.
The factors behind the price increases in most markets were due to direct implications of the pandemic, such as supply chain disruptions, labour shortages, material availability and the rising cost of raw materials.
Martin Hinge, Executive Managing Director of Project Development Services at JLL Asia Pacific explained, "As the region grapples with the reopening of economies, we are seeing a significant jump in pricing for office fit-outs, especially in cities that rely heavily on foreign labour and imported materials."
Over the next 12 months, JLL predicts that it will likely become more costly to fit out an office, particularly in some markets in China, India and Southeast Asia.
"Given the continued restrictions around the deployment of labour and having to seek alternative and potentially more expensive materials, there remains a high possibility that price increases will sustain across the region," Hinge added. "However, there are some signs of green shoots as vaccination rates rise and travel commences pan-region. This may ease the manpower and skills shortage in certain markets."
Sustainability will shape the future of office design
Despite rising costs, office design will continue to feature strongly on many companies' agendas in the year ahead. According to the report, the top three areas that business leaders have earmarked for further investment in 2022 are technology and audio-visual tools, mechanical and electrical facilities, like sensors and filtration, and sustainability features, such as rooftop gardens, indoor greenery and water conservation.
Hinge said, "Building an office in a sustainable and responsible way creates upfront value for companies. Not only can they decrease operational costs by driving energy efficiency, but they can create a more productive and conducive work environment to win in the war for talent."
"As the office pivots to a place of collaboration and ideation, companies are embarking on the journey of hybrid work by creating seamless virtual and physical experiences for their people. We can also expect a renewed commitment to spending on sustainability, along with the continual evolution of the office, to enhance the overall employee experience," concluded Hinge.
