3 reasons to refurbish your office ... and another 3 to move

The rising costs of materials and labour, along with the challenge of achieving net-zero carbon and optimal hybrid work strategies, is weighing heavily on business’ decisions to either stay put in their current office and refurbish or move to fresh premises.

Incentives from landlords to retain tenants – and those enticing businesses to new premises – remain at historically high levels across many markets. JLL research notes that both can include capital contributions toward fit-outs, rent abatements and ‘below the line’ inducements like the use of swing space (temporary office space within the same building) to allow sitting tenants to refit with minimum disruption to operations.

However, fitting out an office in the current climate is not without challenges. According to the JLL report Australia Fit-Out Cost Guide 2022/2023 there has been a 14.8 per cent year-on-year increase in average costs in the construction process.

The result has seen Sydney overtake Tokyo to become the most expensive city in the world to fit out an office, with an average cost of $2765 per square metre compared to $2708 in Tokyo. Extended supply chain timelines and labour shortages are also affecting fit-outs in Australia.

“The choice to refit or relocate is not one size fits all,” says Jackson King, director of tenant representation for JLL Australia. “We typically suggest undertaking a workplace study to understand the current and future requirements of your business and then commencing a market process to understand all suitable options. These can then be compared, evaluated and leveraged against each other to ensure the best outcome is achieved.”

To demonstrate the current challenges, during one project JLL carried out for a government agency, the wait for switchboards increased from eight to 20 weeks.

In a Northern Territory building fit out, COVID struck 120 staff resulting in a loss of 700 hours. The decision to extend labour hiring to interstate helped minimise delays.

Faster procurement cycles and more detailed pre-tender due diligence can help mitigate some problems but remaining flexible is key, experts say.

This is especially the case for the recurring issue of office fit-out timelines being blown out by late design changes brought on by the pressure to deliver successful hybrid work environments.

“The spotlight is very much on the purpose and design of office spaces, with every part of the organisation scrutinising the role of the workplace and its alignment with business strategy,” says Alan McKay, JLL project and development services state manager in Victoria. “The pressure to get it right is resulting in constant and late design changes as organisations strive to strike the perfect balance between collaboration, flexibility, and individual work preferences.”

Below, JLL weighs up whether businesses should stay put and refit their offices to accommodate new workplace patterns or relocate to new premises where the work is already done.

According to JLL’s latest Tenant Perspective report most cities present a tenant-favourable environment and deals on offer to stay and refit are enticing. In Sydney’s CBD, for example, gross incentives now average over 35 per cent of the total rental commitment over the lease term, compared to pre-pandemic incentive levels of sub-20 per cent.

A new fit-out can refresh a space, making it more enticing for staff to return to the office without the instability and potential inconvenience associated with relocation.

“This may be less of a concern in a CBD location as your workplace may already be spread to a point, but, city fringe or suburban locations may be very tied to the local area,” says Anthony Meola, manager of project and development services - NSW, JLL

“Utilising an existing fit-out or adapting it to suit, reduces waste and embodied carbon, which can provide improved ESG outcomes vs relocation,” says King. According to the UK infrastructure consulting firm AECOM, 60% of embodied carbon emissions are related to the substructure, frame and roof of a building. A refurbishment retains all these areas, meaning the carbon footprint of a refurbished building is about half that of a newly built replacement.

“There is currently downward pressure on commercial rents, so, if you’re in a location on the city fringe or suburbs and feel a CBD location would be beneficial, now is a good time to secure a more premium asset,” says Meola.

According to JLL data, 54 per cent of leases in the Melbourne fringe were for Premium and A-Grade office space.

If you’re currently in an older building, attempting to reach ESG targets may be commercially unviable. “We’re seeing tenants choose to relocate to buildings that enable them to reach ESG goals and partnering with likeminded landlords to jointly formulate strategies and action plans for assets,” says King.

 “This is a key driver for most organisations today and we’ve seen a real trend towards improving office environments through relocation to better quality and better located assets,” King says.

 According to JLL’s Asia Pacific Workplace Preferences Barometer, 50% of staff miss social interactions in the workplace. If your current office design doesn’t easily allow for a fit-out that allows more collaboration and interaction, moving to an office that does might help.