Developers urged to abandon initial fitouts

Copyright: David Lawson - published in Property Week April 2007

A lot of new investors are coming into property and even more are anticipated once real estate investment trusts take off. One of first questions these novices may ask is why the inside of buildings seems to get so little attention.  It is in the nature of the property industry to ignore interiors.  Developers see themselves as doing all the hard work of gaining planning permission and building a ‘shell’ – the walls roof and floors – but leaving occupiers responsible for interiors. 

   Investors more familiar with residential might feel this is similar to unfurnished lettings but the arms-length attitude of commercial landlords is even more distant. You would not expect, for instance, an unfurnished flat to have skimpy lighting, bare kitchens and primitive plumbing.  Yet this is close to the condition of many office blocks when the builders move out. There will generally be at last one section fitted out with carpets and furnishings as a show area. It will be only skin deep – and is often torn out when a tenant comes in.

  This has long been an irritation to some developers and consultants, who recoil at the sheer waste of resources but bow to agents who insist that potential tenants are put off by bare concrete.  A wide ranging examination of green issues could change things as the focus falls on how offices are fitted out. This trend, and the drive to create more efficient flexible space to match modern working, will be examined in more detail over the next few weeks. But it is worth explaining first the various stages in the life of offices and who is responsible for what.    

Stage One: Shell and Core. Walls, floors, roof and service shafts built to specification by architects, surveyors and engineers.

Stage Two: Category A fitout. Includes raised floors, false ceilings, lighting, ventilation and power, usually installed by the developer’s team.

Stage Three: Category B fitout. Incoming occupiers rarely make do with basics. Apart from decorating and furnishing, they usually employ their own team of consultants to advise on tasks such as upgrading heating and lighting, and installing partitioning, reception and catering.  Fitout contractors such as Overbury and ISG Interior Exterior carry out the work.

 Design/Build involves a different process often used for smaller scale development with a known occupier on a long lease. A single team acts as a one-stop-shop providing everything from design and space planning to fitting out and refurbishing. Leading contractors include Morgan Lovell or Maris

  Building costs and rents tend to dominate headlines and fitout is often overlooked,  yet the bills can be substantial.  ‘Cat A’ costs between £38-50/sq ft and ‘Cat B’ from £70-100/sq ft, says Clive Butterfield, construction director at Overbury. So on a typical 10,000 sq ft building a developer will have to budget for as much as £500,000 on a basic fitout while an occupier could face a bill of up to £1m for top grade space.  These costs could be far lower if the system was more rational, says Butterfield.  ‘It costs 20% more to go from Cat A to Cat B than from a bare shell,’ he says.

A few developers such as Stanhope and British Land agree, and provide buildings to ‘shell and core’ stage. They are an exception, however, particularly outside the sophisticated London market. Most still accept the agent’s credo that space will not let without at least a veneer of fittings showing the way it could look.

This hurdle is avoided where interior consultants are involved early in the development process, says Butterfield. The ideal is where an occupier takes space before the shell is completed and can call in its own consultants to design the fitout. Andy King, managing director of Metropolis Property Research, has noted a far closer relationship between contractors and architects in central London over the last six months because of the boom in pre-lets.


   Around £2.5bn of fit-out contracts were awarded between 2004-2006 for central London prime new space, according to Metropolis Property Research, a spin-off from   This is calculated on an average value of £82/sq ft for projects over 20,000 sq ft and £50/sq ft for smaller ones. The figures are rare evidence of the scale of this little researched sector, says MD Andy King, who has also helped pioneer analysis of UK business parks and London offices.  The overall total will be much larger, as the figures do not include speculative refurbishment, let alone the rest of the UK.  Contracting is dominated by top two firms, ISG and Overbury. Market share among architects is more evenly spread.

Central London Fit-Out Contractors 2004-2006

                                                                              Market Share %

ISG InteriorExterior                                                        29

Overbury                                                                         22

Como/Mace                                                                    10

StructureTone                                                                   9

Skanska/Kontor                                                                7

Wates                                                                               6

Canary Wharf Contractors                                               5

Ibex                                                                                  5

Bovis Lend Lease                                                            4

Parkeray                                                                          3

Source: Metropolis Property Research

Central London Interiors Architects 2004-2006

                                                                                    Market Share %

Swanke Hayden Connell                                                           17

MCM                                                                                      15

Pringle Brandon                                                                        14

BID                                                                                          13

Sheppard Robson                                                                     12

Gensler                                                                                     11

HOK                                                                                       10

Morey Smith                                                                              3

Woods Bagot                                                                             3

TTSP                                                                                         2

[Source: Metropolis Property Research]