Posted by Mike Millward

Posted 12 February, 2016 OBI BLOG

construction-2The commercial property market is flying high. There are a lot of confident businesses out there looking for more space. It’s a positive time anyway, and adding in the pent-up demand from businesses that maybe should have moved in the last few years but felt it too high-risk, it all means that there’s a lot of demand for workspace.

The ability of the UK’s construction sector to meet that demand is being severely tested – 2015 saw further increases in tender price inflation as demand continued to outstrip supply across the country. According to the Royal Institute for Chartered Surveyors, construction tender prices are set to rise by 28 per cent in the next five years. All this affects every business with a need to fit a new office, or a landlord looking to refurbish space.

Why is this happening? There are several factors: increasing cost of materials, for one, while input costs – non-specific issues relating to construction – are also rising. Labour wages have risen, as there is a significant skills shortage (a knock on effect of the recession where skilled workers were laid off and sought work elsewhere). And although much of the recent development boom has been focused on commercial property over residential, the housing crisis means there’ll be more demand for skills and materials from housebuilders.

Broadly speaking, construction costs are expected to go up by 5% a year for the foreseeable future. It’s clear that the costs in terms of pounds spent per sq ft will rise significantly for most occupiers. Looking at the list of fit-out projects OBI have completed in recent years, the projected cost of some were they to take place in 2017 is an eye-opener. construction-6

Any business occupier that needs to move in the next few years, might be better off doing it sooner rather than later – in terms of fit-out, you’ll get more for your money by moving in 2016 than in 2017.

Although it’s possible that people will spend less per sq ft on fit-out, we’re not sure that will happen. The reasons for moving and the reasons for investing in a good fit-out haven’t changed – if anything, with quality among competitors rising due to increased confidence, it will become more of a priority. However, it will cost you more – so it’s vital to make sure you’re using a project manager who keeps on top of all aspects of the job.

The major threat industry-wide really is in quality. The recession was long and deep, leading many main contractors to cut back on training and apprenticeship programmes. Since 2008, a lot of skilled people have been lost to construction skills with no new talent coming through to fill the ranks – the net loss has been severe. This is a huge problem – it has been estimated that by 2019, 27,000 projects a year could be threatened UK-wide.

This resource issue means a higher risk that quality could be compromised. Smaller contractors are being asked to take on work beyond their true abilities (a problem exacerbated by larger contractors focusing on big -ticket work), inexperienced workers are being asked to do too much too soon. There is pressure on supply chains to deliver at pace. David Noble, group CEO of the Chartered Institute of Procurement and Supply, has said the sector is a “victim of its own success”.

The upshot of this is that occupiers should exercise caution – but it underlines how important it is to seek the best advice. There are competitive advantages to be had and with the way OBI operates, providing an end-to-end solution, can help make the difference in a world of tight margins.

The OBI Difference means we can buy, refurbish, let and sell property. The seamless way we can deliver on a project means a lot of noise and delay is cut out of the equation, meaning we can deliver what you need in a timely fashion. The clients we’ve recently delivered for – Rentalcars, urbanbubble, Pannone Corporate, among many others – are surging ahead with dynamic businesses in inspiring spaces. There’s no reason others can’t follow them, even if it’s getting tougher.