Fit-out contracts in London this year will fall significantly below 2010 levels, according to an analysis of the market.
The drop in contracting work is a result of a shortage of prime office space and an expected shift to occupiers pre-letting new space that could take a couple of years to come on stream, according to the report by Metropolis Property Research.
It says the fit-out market has potentially 6 million sq ft of work in the pipeline in central London but 2.8m sq ft is made up of pre-let developments not yet started and occupier deals that are not finalised. This leaves 3.2m sq ft of ‘live’ fit-out projects still needing a contractor.
The research monitors fit-out projects over 20,000 sq ft defined as category B, which means they are to the occupier’s specification. The data covers occupiers taking new-build and refurbished office space in London between 2006 and 2010.
It does not cover refurbishment and retrofitting of buildings where the tenants are in occupation - expected to be on the increase in the next two years.
The report ranks contractors, interior architects and project managers by sq ft of work won. Overbury is again at the top of the fit-out contractor ranking, increasing its market share to 33 per cent.
Second-placed ISG increased market share by 3 per cent to 24 per cent. Third-placed Como has also seen a slight increase in its market share to 14 per cent. The top three firms now account for 71 per cent of major fit-out projects in central London, an increase of 5 per cent on last year.
The last quarter of 2010 saw an unexpected surge in deals and pre-lets, driving fit-out activity to levels not seen for a decade. In 2010 there was 9.1m sq ft of large deals (over 20,000 sq ft), a rise of 5.2m sq ft on 2009.
Overall activity reached 12m sq ft last year as blue chip occupiers scrambled to snap up diminishing prime space as rents started to rise.
But Metropolis Research managing director Andy King said the overall level of office deals in 2011 is likely to be much lower than last year. “The bulk of the activity will be in deals under 50,000 sq ft, where the competition for fit-out work is fiercest,” he said.
“Most ‘iconic’ office space has disappeared from the market and occupiers requiring ‘prime’ space will now have to sign pre-lets on new buildings under construction or wait until the proposed new developments start to come on stream from late 2012/13. The fit-out market for larger projects will focus on occupiers upgrading existing space through retrofitting, re-stack and refurbishment.”
A large proportion of take-up in 2010 was in the last part of the year, and several major pre-let projects are still some way from appearing as fit-out contracts.
In addition, there was a doubling in the number of ‘mid-range’ projects (20,000 sq ft to 40,000 sq ft) which were carried out by an ever expanding range of fit-out firms, including Parkeray, Wates, Chorus, OPL, Faithdean, and Knight Harwood.
The total market share of the top 10 firms has remained the same as last year, at 14m sq ft, despite record take-up levels in 2010, partly a sign of increasing competition and more players in the market.
Alan Day, a partner in project management and consultancy at Cushman & Wakefield, said: “Contractors are bidding at or below cost price. They then re-bid all specialists and suppliers to try and make a margin and hope to make the rest of the money out of variations.”
For project managers, Turner & Townsend has moved to top place, overtaking Gardiner & Theobald, with a 21 per cent market share.
EC Harris and Davis Langdon have had a successful year. The top four firms now account for 67 per cent of the major fit-out projects in central London.
The top 10 architects ranking again sees Pringle Brandon in the top slot but challenged by Gensler and TP Bennett, which has moved up two places due to a surge in interior projects in 2010.
Gensler has moved up one place, helped by projects for JP Morgan. The top three firms dominate the major projects in central London, with 50 per cent of interior design work.