BUILDING COST UPDATE:

Q1 2014 COMMERCIAL FIT-OUT

AND REFURBISHMENT
UK BUILDING CONSULTANCY | COST CONSULTANCY

2014 EDITION

A
2

BUILDING COST UPDATE

INTRODUCTION
The construction industry is reporting activity at
levels not seen since 2008 and economists are
encouraged by the growth. London in particular
is leading the way and contractors have been
reporting positive upward trends in order books
for 2014.

 CLOSER LOOK AT THE FIT-OUT SECTOR WITHIN

A
THE LONDON MARKET
The potential viability for refurbishing a building is
dependent upon a number of factors; its nature and
condition, its location and potential position in the
office market, economic conditions and the investment
timescale of the developer.

BCIS published data shows that tender prices bottomed

out in Q1 2012 and have been followed by growth of
8.6% to Q1 2014 (averaged across the UK). BCIS are
currently forecasting modest growth over the coming
years at 5% from Q1 2014 to Q1 2015 and 4% from
Q1 2015 to Q1 2016. Economists have generally
adjusted their predictions upwards for the London
commercial market, with forecasts of between 5-6% per
annum of year on year growth for the next three years.

Building1 suggests commercial assets with inherent long

term value related to location, character, future planning
constraints or listed building status might justify significant
investment in refurbishment. Commercial buildings with
limited potential to generate increased rental streams
from refurbishment might, in contrast, only justify a limited
investment to attract short-term tenants ahead of disposal
or comprehensive redevelopment.

Recovery in the commercial market is also evident and

developers are already generating positive investment
returns in refurbishment. Furthermore, with 65-90% of
fit-out expenditure typically qualifying for tax relief there is
yet more incentive for investment in commercial buildings.

Once a client has commissioned an office refurbishment

(Category A fit-out), fitting-out the space to occupiers
specific requirements (Category B fit-out) can be a
significant cost add-on. In principle there are five main
factors which drive fit-out costs; suitability of the base
building, types of space and facilities required, extent of
the services installations, speed of construction and level
of occupancy.
With this in mind it is therefore important for developers
and occupiers alike to consider the above before
embarking on a fit-out investment, as each element will
have a direct impact on the overall construction cost and
ultimately a schemes viability.

TENDER PRICE INDEX FORECAST:

280
260
240
BCIS All-In Tender Price Index (TPI)

220
200
180
160
140
120

Source Data: BCIS

16
20

5
20
1

14
20

13
20

12
20

11
20

10
20

09
20

08
20

07
20

06
20

05
20

04
20

03
20

02
20

01
20

00

100

20

BUILDING COST UPDATE: Q1 COMMERCIAL FIT-OUT AND REFURBISMENT

Building [Online] 15. Available at http://www.building.co.uk/costmodel-office-refurbishment/3034401 [Accessed: 30 April 2014].

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ALL-IN ESTIMATING
RATES UPDATE

3
B

Raised floors
Suspended ceilings
Extension of the mechanical and electrical services
above the ceiling from the riser across the
lettable space
Sprinklers, fire alarms and basic safety signage
Distributed power to each floor
Finishes to main core areas, including fully fitted out
WCs
Office carpets
Finishes to the internal face of the external and
core walls
Due to the wide range of options available to developers
and the effects that building condition and constraints will
have on the works, the range of costs for each grade of
refurbishment are broader than would be expected for
new build construction. There is no standard definition for
refurbishment fit-outs but they are typically categorised as
the following: minor, medium and major refurbishment
works.

Minor refurbishment works

The main purpose of a minor refurbishment is to extend
the economic life of the asset by up to five years.
Opportunities for payback are limited with the scope
of work being confined to the strip out of existing loose
fixtures and fittings and redecoration to a basic standard
with specific allowances for overhauling existing services
and plant as necessary.
Medium refurbishment works with no
structural alterations
These projects aim to renew the existing fabric and
services of a building to present day standards of
performance. The investment timeframe is typically 15
years and works would typically include the stripping out
of existing fixtures and fittings and a fit-out to Developers
Category A specification including the provision of new
services.
Major refurbishment works with minor
remodelling of layouts
Major refurbishment schemes aim to exploit opportunities
to increase useable floor areas and are aimed at an
investment horizon of at least 15 years. Works will
include the replacement of all fittings, finishes and
services and it is highly likely that the facade will be
replaced or upgraded, together with structural alterations
(reconfiguration of circulation space or the infilling of
redundant light wells).

REFURBISHMENT FIT OUT (CATEGORY A) SPECIFICATIONS

ECONOMIC LIFE
INCREASE

LOW SQ FT

HIGH SQ FT

Minor refurbishment works

Up to 5 years

25

35

Medium refurbishment works with no structural alterations

Up to 15 years

90

100

Major refurbishment works with remodelling of layouts

15 years plus

130

175

REFURBISHMENT FIT OUT (CATEGORY A) SPECIFICATIONS

NOTE: The building costs illustrated in this section include preliminaries and overhead and profit for a lump-sum contract, but exclude VAT and
professional fees (incl. legal fees).

BUILDING COST UPDATE: Q1 COMMERCIAL FIT-OUT AND REFURBISMENT

DEVELOPERS REFURBISHMENT (CATEGORY A)

FIT-OUTS
Office refurbishments give developers the opportunity to
optimise the value of a building without the investment risk
and cost that is associated with full-scale redevelopment.
Refurbishment fit-outs vary between different developers/
occupiers but usually comprise the following works:

BUILDING COST UPDATE: Q1 COMMERCIAL FIT-OUT AND REFURBISMENT

OCCUPIERS (CATEGORY B) FIT-OUTS

Category B completes the occupiers specific
requirements and can typically comprise the following:
Installation of cellular offices
Suspended ceiling upgrades and modifications
Enhanced floor and wall finishes, decorations
and branding
Enhanced mechanical and electrical services /
specialist lighting to suit layout
Installation of below-floor power and data cabling to
user accessible termination
Adaptation of raised floor systems
Adaptation of life safety systems
Tea point / kitchen fit-out
Installation of safety signage systems, furniture fixtures
and office equipment
There are no standardised specification levels for a
Category B fit-out but they can be generally categorised
into low, medium and high specification fit-outs.

Low specification fit-outs

These projects place emphasis on getting the most out
of an existing space. Typical features would consist of
the following; limited cellular spaces, minimal alterations
to existing Category A services, limited bespoke joinery,
minimal alterations to base build finishes and the
occupiers head count is maintained with the Category A
design parameters.
Medium specification fit-outs
Medium specification fit-outs generally have greater
emphasis on client facing areas, with higher office
cellularisation, higher services enhancements, bespoke
joinery items, featured lighting and alterations to base
build finishes.
High specification fit-outs
These projects comprise outstanding design and quality
with high-end finishes and often incorporate bespoke
joinery items, featured ceilings and floor finishes,
kitchen and gym fit-outs. The floor spaces will be heavily
cellularised with high services demand.

REFURBISHMENT FIT OUT (CATEGORY B) SPECIFICATIONS

CATEGORY B FIT-OUT SPECIFICATIONS

LOW SQ FT

HIGH SQ FT

Low specification

40

60

Medium specification

60

90

High specification

90

130+

NOTE: Costs include preliminaries and overhead and profit for a lump-sum contract, but exclude furniture, IT equipment, professional fees (incl. legal
fees), relocation costs and VAT. The above costs are all based on schemes where the Category B installation commences from an existing Category A
installation.

The relatively low cost associated with fit-outs and

the high recovery of these allowances also provides a
fantastic opportunity to developers/occupiers.
Plant and machinery allowances are available for office
projects in three forms:
Integral features:
Integral features comprise fixtures integral to the
building, such as electrical systems, hot & cold water
installations, lifts, heating and ventilation systems and
external solar shading. This asset pool allows for a
writing down allowance (WDA) of 8% per year on a
reducing balance basis.

Enhanced Capital Allowances (ECAs):

ECAs provide for a 100% first-year allowance on
energy saving and environmentally beneficial plant and
machinery. Items that may qualify in an office include;
air conditioning, lighting, motors & drives and water
saving technology.
The broad conditions for entitlement to claim plant and
machinery allowances are as follows:

Be within the charge to UK tax

Incur capital expenditure on the asset
Have the relevant interest in the building
Use the asset in the course of a qualifying activity

The following table shows the capital allowance savings

based on a 3,500,000 Category B office fit-out,
assuming 75% of costs qualify for capital allowances.

General plant:
General plant includes items such as security & fire
alarms, data & telecoms installations, carpet and
sanitary accommodation fixtures. This provides for a
WDA of 18% per year on a reducing balance basis.

FORM OF PLANT AND MACHINERY ALLOWANCES

QUALIFYING AMOUNT
IN

TOTAL SAVING
IN

YEAR 1 SAVING IN

Integral features

1,350,000

283,500

22,680

Plant and Machinery

1,010,000

212,100

38,178

Enhanced Capital Allowances

265,000

51,250

55,650

Total

2,625,000

551,250

116,508

FORM OF PLANT AND MACHINERY ALLOWANCES

NOTE: Assuming a UK corporation tax rate of 21%.

5
B

BUILDING COST UPDATE: Q1 COMMERCIAL FIT-OUT AND REFURBISMENT

TAX RELIEF ON REFURBISHMENT AND FIT-OUT

EXPENDITURE
Tax relief is available in the form of plant and machinery
allowances via the capital allowances legislation, as an
incentive for investment in commercial buildings. They
are a significant component of the fit-out development
equation, with 65 90% of expenditure typically
qualifying for relief.

CONTACTS
For further detailed advice on construction costs and capital allowances please contact the following:

BUILDING COST UPDATE: Q1 COMMERCIAL FIT-OUT AND REFURBISMENT

QUANTITY SURVEYING
Jon Hannon
Senior Director, Quantity Surveying
t: 020 7182 3297
e: jon.hannon@cbre.com

CAPITAL ALLOWANCES
Graham Burrell
Director, Capital Allowances
t: 020 7182 2092
e: graham.burell@cbre.com

PREPARED BY:
Jonathan Allen
Surveyor, Quantity Surveying
t: 020 7182 3174
e: jonathan.allen@cbre.com

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