Specification Drives European Office Refurbishment Costs
Investors respond to tenant demand
CBRE's European Investor Refurbishment Cost Guide provides a comprehensive analysis of the cost variables in 15 cities, with comparisons of benchmarking rates for commercial office refurbishment projects, ranging from minor works through to major remodelling.
The cities profiled are: 1. Amsterdam 2. Berlin 3. Copenhagen 4. Dusseldorf 5. Dublin 6. Frankfurt 7. Hamburg 8. Helsinki 9. London 10. Madrid 11. Milan 12. Munich 13. Oslo 14. Paris 15. Stockholm.
Workplace trends and refurbishment costs
With workplace trends having been accelerated by Covid-19, refurbishments are a key part of investors’ strategy to attract tenants, enhance asset value and rental growth, and meet Environmental, Social and Governance (ESG) criteria. Demand for higher specification refurbishments to stand out in competitive markets is making projects more expensive. That’s according to a new investor refurbishment cost guide by CBRE, the world’s leading real estate advisor.
A defined scope of work accompanied by a reliable budget are critical elements of a successful refurbishment project. Investors must consider the balance between cost and return, and factor in severe material shortages causing price hikes across Europe and features specific to each market.
The investor refurbishment cost guide follows the recent release of insights from CBRE’s 2021 Global Investor Intentions Survey, which indicates that as the global economy bounces back from the pandemic-induced downturn, commercial real estate investors are looking to 2021 and beyond as period of high growth and substantive change. Tenants are demanding flex space, amenities, wellness and safety add-ons.
John Atkins, EMEA Head of Project Management at CBRE, said: “CBRE's European Investor Refurbishment Cost Guide helps investors understand the difference in costs for levels of works.
“Unsurprisingly, workplace requirements have evolved over the last year. Leading companies are seeking thoughtful design, quality amenities, and heavier investment in technology for collaboration and video conferencing, as well as smart building technology to support customer experience and energy efficiency.
“Investors want to know how much it will cost to deliver higher specification workplaces, and if that investment is worthwhile. Our benchmark cost data for different levels of refurbishment and local market analysis acts as an important starting point, helping investors to think about the finished quality and market appeal of new spaces.”
Matt Wilderspin, Head of Project and Cost Management at CBRE, said: “Along with changing tenant demand, the green agenda has risen sharply in importance for both investors and occupiers.
“Some 35% of the carbon expended to produce a built asset is in the building's frame, so refurbishing and extending a building’s life may generate fewer harmful emissions than demolishing and replacing it. As an industry, we’re now at the level of sophistication where design, utility and sustainability are all core considerations in the scope of a project and should be accounted for in the initial cost assessment.”
Refurbishment cost trends in European cities
In 75% of the cities profiled, specification quality was the dominant cost factor, with demand for higher specification refurbishments making projects more expensive. In both London and Madrid, achieving the specification quality needed to stand out in competitive locations is the number one cost driver.
Europe has been impacted by material shortages, delays and price increases. Covid-19 interrupted manufacturing and distribution, while infrastructure projects in China, the USA and other developed nations have caused prices to rise sharply and lead times to become extended, especially for core materials like steel. In some locations, the premium attached to imported materials contributes to higher pricing. In Dublin, demand for raw materials is pushing up refurbishment costs.
Skilled labour shortages are also widely reported, with lack of capacity and reduced mobility across the construction sector in 2020 and 2021. Nordic cities (Helsinki, Oslo, Stockholm) report labour cost and availability as particularly problematic, especially combined with the high cost of living and a low‑level of legal, non-domestic workers.
Cities with poorer quality existing building stock and short supply face higher costs for refurbishment. It is more expensive to adapt older buildings to meet the demands of today’s occupiers, while site logistics and narrow streets can influence costs greatly. In Milan, for instance, city centre refurbishment projects are 20-30% more expensive due to the local logistics restrictions. Amsterdam is more expensive to build in compared to other locations in the Netherlands because of the canal network and local infrastructure.
Regulatory compliance and local tax are other key cost drivers. Upgrading existing buildings to comply with current standards can take a significant part of the refurbishment budget. In Oslo for example a 25% tax on all goods and services raises costs in an already expensive city.