A Renovation Surge

It has never been more expensive to renovate an office. Labour shortages, rising wages, increasing material costs, trade tariffs and evolving employee expectations are all contributing to rising costs for office renovations. And yet the demand for office construction remains strong – with rising costs showing no sign of slowing.

Employers looking to balance the cost of office renovations with employee expectations can take precautions to keep costs reasonable, however. Seeking a qualified advisor and following the International Cost Measurement Standards (ICMA) will reflect positively in the bottom line.

“Ongoing cost pressures and tariffs around the world highlight the need for prudent cost advice from industry experts to guide clients from project inception to delivery,” said Chris Smith MRICS, Member of the Americas World Regional Board and Practice Leader for CBRE Cost Consultancy in North America. “This year, the three most expensive markets to fit-out an office were in New York, San Francisco and Frankfurt.”

The pace of growth is quickest in regions where the economy is trending upwards – often tied to a distinct niche like activities in the technology sector. Occupiers looking to renovate office space in San Jose and Seattle will witness the effect of rising costs as technology firms compete for top talent and superior office space in which to house them.

In North America, total project costs average between $91 to $224 per square foot between the low and high specification, up approximately four percent from last year, with several hot markets (Phoenix, Nashville and Toronto) experiencing cost increases greater than six percent.

In Asia-Pacific, cost increases were observed across most markets, with the exception of South Korea where currency volatility outweighed the impact of inflation. Melbourne and Brisbane are currently two hot markets experiencing above-average cost escalation. New trends and innovations for offices can be expensive.

While the general trend sees office renovations rising in cost, steps such as accurate cost prediction, benchmarking and life cycle costing can be taken to mitigate steep increases. This is where the role of a cost management professional and their unbiased advice comes into play.

Cost prediction is dynamic and fast moving, reliant upon digital technologies to collect, analyse, store, update and exchange data and information. Artificial intelligence, building information modelling (BIM), blockchain, cloud computing and other technologies are changing the way cost prediction and cost management operates.

Cost management professionals rely on these technologies to enhance their early cost advice and provide fast and accurate estimates of costs for various renovation options being considered. This allows owners and occupiers to make prudent design and construction decisions and sets the expectation on time and costs associated with final delivery. Readily available cost benchmarks in key markets play a crucial role in this process.

“Benchmarking also allows cost comparisons across projects so owners are able to see where costs are increasing out of sync with other projects based on historical cost information,” explains Anil Sawhney. “Using the International Cost Measurement Standards (ICMS) as a framework builds transparency to give owners the opportunity to identify issues and find solutions before costs unexpectedly escalate.”

Improving the quality of historical data is key to better cost estimates and this is where ICMS comes into play. It ensures the data collected is consistent and comparable – a necessity that has lacked and therefore has slowed progress to date.

Informed clients need robust data and cost reporting for benchmarking purposes in order to assess the financial viability of their projects and whether it is affordable to operate and maintain, use and renew or dispose of them. Using ICMS, advisers on the capital construction project, life-cycle cost and facilities management can provide construction and cost information to their clients at various stages throughout each project's life, thereby improving cost certainty and enabling better-informed decisions.

To keep pace with the fast-emerging trends in our industry, we must accelerate adoption of the international standards such as ICMS, make these standards relevant nationally, gather and share cost data, embrace a whole life-cycle approach, and integrate cost management practices into digital construction. This will increase certainty in cost and time prediction of renovation projects and deliver value to all stakeholders involved in such projects.