Article

Fit-out: the cost of office design in the new world of work

New space concepts and increased developer prices are making themselves felt in the costs of office fit-outs.

November 12, 2019

In the battle to secure the best talent, sharp weaponry is being deployed – which includes a modern fit-out for office spaces. There seems to be no limit to the money that many companies are willing to spend when it comes to gaining the services of young people with highly sought-after qualifications: alongside fitting remuneration and the much-vaunted work-life balance, ever more importance is being attached to the workplace itself.

It must be easily accessible, and preferably in a good and lively district. But the interior spaces are also increasingly the focus of attention – with “amenities” the magic word used to draw young talent. These can include lounges, meeting places and recreation areas, while the major players also offer fitness rooms and entertainment options. No one really wants to work in grey offices with yellowing photos of families and pets on monstrous desks any more. And in view of the frequent switching between different activities and locations that characterises today’s world of work, it needs to be flexible, too.

Construction costs are making fit-outs more expensive

Of course, none of this comes at the same price as a dusty old office. Indeed, the costs of fitting out office spaces have risen considerably – in Berlin, for example, the average price per square metre in the central business district (CBD) has grown from €860 in 2017 to some €1338 in 2019. And this does not include the costs for furnishing. Alongside the changed quality requirements, prices are also being driven by the general trend in the construction industry and associated trades. Capacities are currently far outstripped by demand, which is noticeably pushing up the prices of service providers.

As the majority of the costs are attributable to construction work – in Berlin these make up 56% – the price level of the industry is also reflected in the overall costs. Furnishings make up 22% of the costs, closely followed by the office IT equipment. The latter is yet another effect of digitalisation: a fifth of all fit-out costs now go on technical equipment alone. On the other hand, fees (such as those for design or project management) make up just 7%.

We discussed the space requirements of companies and the latest fit-out trends with our specialists at JLL: Andreas Bussas, Head of Corporate Solutions Germany, Stefanie Eisenbarth, Team Leader Workplace Strategy, and Martin Hofmann, Head of Project & Development Services Germany. 

Construction work accounts for the lion’s share of fit-out costs. Is there potential for companies to save money here?

Hofmann: Yes, if companies start planning at an early stage, they can often save considerable amounts. In our experience, however, they frequently lease an arbitrary space in the desired size, and then start to refurbish it according to their wishes. Of course, the further its initial condition is from the company’s objective, the more extensive the building work will be. And this can entail enormous costs.

It would be more sensible to think about the new work and space concept before searching for premises, and also seek professional advice early on. Then it makes sense to look at new offices which already meet the requirements of the company to as high a degree as possible. This is something of a challenge in today’s office space market, as most companies are just glad to find new business premises at all. However, companies that are forced to lease offices due to their development can also see this as an opportunity and, in collaboration with the owner, get involved in designing the space at an early stage.

In general, companies must be aware that when it comes to construction work there are three interrelated components: cost, deadlines and quality. Accordingly, if a company wants to reduce costs, this is only possible by sacrificing quality or extending the deadlines. If it does not wish to accept compromises in quality or extend any deadlines, this inevitably creates new project challenges.

What is currently in demand in the market for office space? Are all companies really looking to become “flex” and revolutionise their working environments, or is this topic somewhat overhyped? 

Bussas: Flex space is an important component of a company’s real estate strategy and will be an indispensable part of the corporate world in the future. There is a growing desire for flexible conditions as well as simple and relatively quick leasing without the need to fit out the office, buy furniture, or operate the space. This means strong competition for conventional offerings. Not all businesses require flexible workspaces, but the vast majority will significantly increase their usage over the next five years. Even if flexible office spaces only make up 5 to 10% of company portfolios in the future, we are still talking about significant growth potential.

Do you also encounter customers with wishes that simply do not fit their corporate culture or field of activity? How do you help them find a more appropriate fit-out in those circumstances?

Eisenbarth: Our customers generally have a certain idea of what their new office should look like. These businesses often draw comparisons with the office design of other companies they are aware of. They tell us that they want to be like – or do not want to be like – a certain other company. In this case, we need to hold detailed discussions with the customer in order to gain a better understanding of the change they are looking for: what is feasible and where is continuity needed? In most cases it quickly becomes clear that they cannot do justice to their own self-perception simply by emulating the seemingly elegant furnishings of another company. The individual and unique brand design in the space, the branding, signage and other things are highly important and contribute to the self-image of a company and its employees.

Which special characteristics are particularly sought-after by companies in their new office spaces?

Eisenbarth: The trend towards a cosier atmosphere in the workplace is still the most palpable one. As such, the design and furnishing of office spaces are geared towards a combination of work and well-being. The focal point is usually a central location, such as a café or a lounge area, where all the employees can get together. The technical prerequisites that enable flexible working throughout the entire space are decisive here. And of course the room structure, technology and fit-out also need to support the processes and reflect the character of the company.

Bussas: The trends tell us that the modern office reinvented itself once again in 2019. It is now more creative, digital and flexible. It needs to keep pace with the changes in the labour market and enable staff to work effectively and in an appealing environment. There is no one-size-fits-all solution here: the chosen working environment is heavily influenced by the corporate culture, as well as by the organisational structure and working processes. Alongside open-plan offices and multi-space working environments, traditional office structures with smaller, closed spaces are still in demand – particularly when discretion is a major factor.

Can you think of any fit-out requests that particularly surprised or impressed you?

Eisenbarth: I was really impressed by a customer that planned what was to be installed and used in great detail as part of an extensive refurbishment. For example, the stones for the flooring came from the same quarry as those which had been laid originally. The selection of paints, floorings and furniture combinations were all coordinated with one another over a period of four years – and everything was produced and manufactured in the region.

Hofmann: But there are also unpleasant surprises. From a sustainability perspective, it is amazing and disappointing how little existing interior fittings are incorporated in many fit-out plans. In one case I am aware of, new and very high-quality equipment was completely removed and disposed of. The new lessee wanted their fit-out requirements to be implemented in full and was not even prepared to make small compromises in terms of using the existing furniture and fixtures. Even the possible seven-figure saving did not convince them.

Martin Hofmann
Head of Project & Development Services Germany
Andreas Bussas
Head of Corporate Solutions Germany
Stefanie Eisenbarth
Team Leader Workplace Strategy Germany