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01 The fit-out sector

Workload remains high in the shop and office fit-out markets and contractors remain cautious about which projects to tender for.

The market for soft landscaping remains relatively quiet and larger projects have been secured by smaller firms with low overheads. Hard landscaping projects are more prevalent with the continuing trend towards pedestrianisation of city centres.

The whole of the finishing-off market remains busy and this trend is set to continue; the construction market remains buoyant and Gardiner & Theobald鈥檚 latest Tender Price Inflation Indicator shows an average of 5% construction inflation across the UK in 2007.

Retail fit-out Tony Farmiloe Retail sales may have faltered and the internet is growing but large expansion and refurbishment programmes are keeping it busy down the shops

02 Market update

The Office for National Statistics鈥� latest report on retail sales says sales growth, although better than a year ago, is still unpredictable month-to-month and that the upward trend seen before Christmas has dropped since the start of the year. But if you think that means the retail fit-out market is slow, you鈥檇 be wrong.

Many retailers are working on large expansion or refurbishment programmes and hardly a month goes by without another announcement on increased capital spend. Marks & Spencer, Primark, Asda, J Sainsbury and HSBC are among the companies providing significant workload.

Many retailers are looking to improve the look of existing stores or to re-badge shops bought from others. New stores are usually small and medium-sized units in town or city centres, with the local convenience store format being very popular.

All this means the retail fit-out market is buoyant, with much work being let through framework or partnering agreements. The promise of a consistent workload for contractors helps to keep margins at a reasonable level.

03 Hot topics

Internet shopping

Non-store retailing has just recorded its highest three-monthly growth rate since July 2004, at 3.4%. Over the same period, sales in food stores only grew 0.2% and sales in non-food stores grew 0.4%.

To counter this, some high-profile banks and retailers are trying to refocus on the high street by offering a "personal touch". Internet shopping is a habitual concern for retailers and their contractors: all we know for sure is that the discussions about the web鈥檚 impact will roll on.

Skills shortage

The growth of the retail fit-out market on the back of increased demand from retailers has led to people shortages across the sector.

This is a problem afflicting the construction industry as a whole, but in the microclimate of the retail fit-out sector its effects are even more pronounced. One of the solutions is to import skilled and unskilled workers from abroad and this is happening at all levels, on virtually every project.

Store design and environment

Every retailer is trying to find the ingredient in store design that will give them an edge over competitors. Mezzanines were innovative a few years ago but are now common.

The latest weapons are lighting consultants, employed to supply light and airy or ambient and sophisticated lighting design. These schemes have increased costs of these elements. So now the challenge is to produce the same result at a reduced cost using new technology, alternative suppliers or bulk purchasing.

04 Lead times for typical stores

The programme factors for retail fit-out are similar to other projects of the same size and complexity. The design, manufacture of installation of sales area finishes, services, perimeter and centre merchandising systems, for a typical department store of 80,000ft2 sales area, are as shown in a table attached.

05 Costs

(See tables attached)

Office fit-out 鈥� Gavin Murgatroyd

The market is busy and order books are full, but contractors shouldn鈥檛 relax as profit margins remain tight. The Budget wasn鈥檛 much help, either.

06 Market update

The office fit-out market is busy at present and contractors鈥� order books are filling fast.

This has lead to a more selective approach to tendering. Fit-out contractors are selecting projects they want to work on and are avoiding tendering for anything that does not fit in with their current work portfolio.

This means the mark-ups for fit-out contractors have remained relatively low at 0.5 to 2%. The fit-out market is extremely competitive and contractors must be careful to ensure errors or omissions do not undermine the tendered profit.

The current preferred procurement route for contractors is a two-stage tendering process for projects over 拢10m to limit tendering expenses.

07 Hot topics

The Budget

In the wider business community few will benefit from the proposed changes:

• General plant and machinery. Writing down allowance reduced from 25 to 20% a year.
• Fixtures. Writing down allowance reduced from 25 to 10% a year
• Long life assets. Writing down allowance increased from 6 to 10% a year
• Green technologies. Tax credits for losses resulting from certain capital expenditure

Although the chancellor emphasised the increase in writing down allowances for long-life assets, in reality this will be of little benefit to most businesses. Of far greater concern is the slowdown in the rate of relief for general plant and machinery, particularly for those assets which may attract the 10% writing down allowance (WDA) for fixtures. The overall effect for those assets attracting the 10% WDA could be a reduction of more than 25% 鈥� hardly an incentive for future investment.

The green technology tax credit and the scope of the new fixtures provisions are subject to consultation; however with an introduction date of 2008/09 this leaves little time for a thorough consultation process.

Category A Allowances 鈥� contributions from base build developers are currently about 拢38/ft2; fit-out clients should ensure that any contribution is indexed from the date of the agreement to the practical completion of the base building.

Capital allowances

The government has introduced the final version of Part L, which increases efficiency requirements and introduces mandatory air pressure testing for new buildings.

BREEAM ratings

Many clients are seeking 鈥渧ery good鈥� or 鈥渆xcellent鈥� BREEAM ratings, for which a number of criteria must be reached including:

• Seasonal commissioning
• Daylight and glare control
• High frequency lighting
• Electric lighting design
• Lighting zones

Note: By removing developers鈥� carpets, tenants may lose BREAAM points

08 Lead times

Small office: 50,000ft2, London:

Design: 3 months
Procurement: 2 months
Start on site: 1 month
Build: 3 months

Medium office: 100,000ft2, London:

Design: 3 months
Procurement: 2 months
Start on site: 1 month
Build: 4 months

Large office: 250,000ft2, London:

Design: 9 months
Procurement: 3 months
Start on site: 1 month
Build: 9 months

09 Issues affecting the cost of office fit-out

• Proportion of cellurisation as opposed to open plan
• High cost usage, for example meeting rooms, restaurants, gyms, auditoria
• Amount of work required on base building, for example quality of reception area
• Whether the building is occupied when being worked on. This means working around clients or when the building is empty. This is normally when the building is already occupied and a refurbishment is under way
• Churn, with regard to demountable partitions and the flexibility of space
• Dealer floors and associated IT 鈥� high-cost items which significantly increase overall fit-out costs.

Fit-out costs for the leading markets (拢/ft2)

Category A fit-outs

• Bank: 拢122-211
• Insurance: 拢154-175
• Commercial: 拢101-133
• Lawyer: 拢91-122
• Media: 拢91-122
• Research: 拢91-101
• Accountant: 拢91-101

Category B fit-outs

• Bank: 拢84-173
• Insurance: 拢116-137
• Commercial: 拢63-95
• Lawyer: 拢53-84
• Media: 拢53-84
• Research: 拢53-63
• Accountant: 拢53-63

Landscaping 鈥� Joseph Burns

It鈥檚 quiet in the undergrowth, and it鈥檚 been raining, which is good 鈥� hosepipe bans are lifting across the UK, and gardens are getting greener in more ways than one

10 Market update

The market for soft landscape installation remains relatively quiet, particularly for the larger, well-established firms that have their own nurseries. There are few major projects coming through the tender stage and what there is has largely been secured by smaller firms with low overheads. There are fewer framework agreements around, although this may change as the construction economic cycle progresses and the current crop of regeneration schemes are completed.

Hard landscaping projects are more prevalent, with the continuing trend towards pedestrianisation of city-centres and the preference for low-maintenance open areas.

11 Hot topics

Water shortage

Six months ago the main concern in the industry was the drought and the effect of hosepipe bans. But the low level of rainfall over the past three years has now been reversed with some areas receiving a month鈥檚 average rainfall in 24 hours in February.

By the beginning of March all hosepipe bans in the country had been lifted. The expectation is that reservoirs and aquifer levels are now such that we should be able to get through the summer season without needing bowsers and special measures.

Sustainability

While the industry has recognised the contribution that could be made on this subject with the more extreme requirements of green roofs or reed beds for foul sewage treatment, we are now starting to see real implementation of sustainable measures. Most landscaping schemes on sizeable projects are expected to accommodate the ubiquitous grey water recycling arrangements of ponds, underground tanks with pumps or ponds for low temperature heat recovery measures.

An immediate and obvious reaction on this subject has been a trend to specify plant material which can tolerate extended dry summers and wet winters. The Mediterranean garden will become more common in soft plant displays.

12 Lead times and delivery

Last year, the coldest March since 1987 brought the unexpected bonus that bare root material could be planted for four weeks longer than normal. However, this year the mild temperatures of February and March have made planting bare-rooted shrubs risky, particularly in potentially water-logged ground.

Container-grown material eliminates some of the risk, though with a financial premium. Continental plant material is still readily available although not at the excessive discounts of a year ago as surplus stock in the depressed German and Dutch economies was cleared.

13 Costs

• Labour costs for landscape works increased just over 3.33% last year
• Our database suggests that overall cost of landscape-type projects have increased 2.25% over the past 12 months. Although this figure has some interesting components, with the soft planting only showing an increase of 1% while hard pavings have shown increases of 3.5%
• Transport fuel showed a 20% rise in 2005, but it has fallen 2.5% in 2006
• Sand and gravel continue to show real falls in costs with a further 3.3% reduction after a 15% drop in 2005
• Blockwork shows a 3.4% increase in 2006 reversing a 2% reduction in 2005
• Tarmac and similar materials have experienced increases of about 10% after the rise in oil prices in 2005.