The cost to fit-out workplaces in India continues to rise, mirroring ongoing inflationary pressures, higher commodity prices and increased construction costs. According to global real estate consultant JLL’s (NYSE:JLL) Asia Pacific Fit-Out Cost Guide 2023/2024, the average cost to fit-out workplaces with medium specification across India increased by 4.5% with the average fit-out cost per sq ft rising to INR 5,788 from INR 5,546 last year. Mumbai continues to be the most expensive city in India for office fit outs at an average of INR 6,588 per sq ft followed by New Delhi at INR 6,068 per sq ft.
In the Asia Pacific, despite regional differences, we see that the inflation levels are starting to stabilize. This trend mirrors the recent news of the worldwide economy, where inflation is gradually reaching the closer target and economic growth has been better than expected. JLL’s APAC fit-out guide details the nuances of cost variations across the regions, mapping construction price shift, outlook for capital procurement activities, strong client sentiment and ESG commitments gaining prominence.
“In 2023, a year marked by global headwinds, the annual numbers for gross leasing in India’s top seven markets crossed the significant 60 million sq ft milestone for the very first time. This solidifies India’s position and firmly establish its credentials as the ‘office to the world. We anticipate this momentum for Grade A office demand to continue in 2024 with new entrants to the country, especially in the GCC and new tech sectors. Despite a 4 to 5% rise in construction prices, there is confidence within the India market as flight-to-quality remains a theme. India’s supply-chain performance has improved significantly over the last two year, coping better to the global disruption, and varying regulatory frameworks. Largely, input costs have decreased due to reduced global raw material prices, however increasing labour costs remains set on an upward trajectory. This industry is also making efforts to modernise and streamline the supply chain to enhance efficiency and competitiveness. And with average fit-out cost across all 7 major cities remaining much below the regional average, it makes India a strong market for global companies and investors” said James Jipu Jose, Managing Director, Project & Development Services (PDS), India, JLL.
“Our clients continue to remain bullish despite the continuing impact of price inflation, and our teams report robust pipelines. There is a renewed focus by clients to attract staff back to the office, improve productivity and well-being, and meet net zero carbon (NZC) commitments,” James added.
“While inflation in Asia Pacific markets is returning to normal levels as widely projected, certain supply chain challenges remain for mechanical, engineering and plumbing, information technology and audio-visual items. Going forward, we foresee factors like commodity prices, energy costs, and wage increases continue to impact pricing, lead to delays for some fit-outs and unpredictability of selection items into Asia Pacific,” said Martin Hinge, Executive Managing Director, Project Development Services, JLL Asia Pacific.
Sustainability remains top of mind for corporates.
Leasing office space in sustainable buildings is becoming non-negotiable for occupiers committed to ESG. Among other factors, sustainable fit outs are gaining prominence as an initiative to decarbonise workplaces. In a survey of 240 CRE leaders across Asia Pacific, one-in-two cite sustainable fit-outs as a priority to be actioned within the next three years. This confirms that sustainability is now a key driver in the way occupiers acquire, fit out, and manage their assets.
While ESG commitments are a key driver of sustainable fit-outs, cost savings over the long term can offset upfront Capital Expenditure (CAPEX) costs. Sustainable materials or pieces of equipment may be more expensive upfront but those with better energy ratings or longer lifespans will save businesses money in the long run.
Responding to inflationary pressures that projects are facing, one-third of JLL market leaders in Asia Pacific report that pursuing a sustainable design is dependent on the overall project cost. 56% also confirmed that reduced CAPEX on initiatives was being considered to work within budgets, the bulk of which was in Australia and Southeast Asian markets.
Way forward
In the last 12 months, leaders have been reporting increasing sentiment and strong pipelines, in face of inflation continuing to increase. The greater stability in the supply chain and a normalizing of raw material costs has started to reduce risk premiums and lead to tighter pricing in many locations. JLL believes fit-out cost increases will continue their trend in moderation over the next 12 months as these challenges unwind, unless a significant economic event flattens or reverses current trends.