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Patience will be needed when embarking on your future workplace strategy

As we navigate the last step of Boris Johnson’s road map out of lockdown, many businesses are once again re-examining their offices to decide whether they are fit for purpose in a post-pandemic world, says Colliers’ Colin Wood.

21/07/2021 3 min read
Osborne Clark at One London Wall. Image courtesy of PENSON

Naturally, the last year has been a challenge for contractors who work in the London fit-out market. I regularly conduct an informal survey with firms and sub-contractors working within the market to establish what their pipelines are looking like, and what the pressure points are. What is emerging is that there’s a two-tier system within the market.

Larger contractors (tier one), able to take on significant Grade A fit-outs generally have strong order books for the year – matching the activity in the leasing market, where we are beginning to see a flight to quality office space, as leasing levels reached the highest since the pandemic began in Q1. However, smaller firms (tier two) are not seeing the volume of projects coming forward that they need. For sub-contractors, secured work looked stronger, with M&E trades reporting order books at 80% on average for the year, and joinery reported an average of 70%. Both of these issues create real challenges for clients looking to secure the best teams.

While the economy is still only just waking up and taking its tentative first steps, some occupiers will still be carefully considering their expenditure and remain reluctant to embark on substantial office remodels, while others will be working to accelerated timelines and will need firms to design and build within a short time frame.

Although respondents said that the outlook for tendering was looking more positive, there are still significant challenges for the market. The rising cost and reduced availability of materials during the first quarter of this year has been widely reported. Shipping and commodity prices have risen sharply as global demand recovers, with some raw material costs increasing by as much as 100%, which, combined with labour shortages, is creating upward pressure on costs.

Tier one larger contractors are now pricing in risk and becoming more selective in their bidding. They’re refusing to take the risk of commodity prices, meaning that fluctuation clauses may feature more prominently on projects. We anticipate that tender price inflation will be back on the rise in 2021, especially with a number of large projects coming to market in the latter half of the year. This will also impact on price inflation into next year.

While there is much to be positive about, there are also still risks that occupiers and contractors must be mindful of. Margins remain tight so, with rising input costs, this will place contractors at a higher risk of insolvency. Procurement processes cannot skip the due diligence phase due to accelerated timelines, because many of the constraints that contractors are facing cannot be controlled by them, so the risk needs to be shared and factored into planning.

For a lot of occupiers, deferred decision making has meant that time is a luxury they do not have however. Over the years, I have seen how poor design impacts on staff welfare and productivity, so clients need to do their homework and seek advice in order to not pay over the odds for an inferior end product. If anything, patience is probably going to be the key at this time, particularly while businesses wait to see how working patterns settle down after lockdown. Early planning and engagement with contractors, rather than last minute deals, is probably going to pay off in the long term, so that occupiers get the best outcomes, which ultimately impacts on their employees. It also provides contractors with the opportunity to plan their pipelines effectively, and not overstretch their budgets at the wrong time, so they can remain solvent as well.

Read the full report here.

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