The UK interior fit-out and refurbishment market is estimated to have seen substantial growth of 8% per annum in 2014 and 2015, according to a new report by AMA Research. Fit-out and refurbishment output continued to increase during the last recession, albeit at lower levels of 2-4% per year, as many major clients, particularly in the office and retail sectors, commissioned interior refurbishment works rather than costlier new build projects.
Overall, commercial offices constitute the largest market for interior refurbishment and fit-out with around 27% of projects focused on Central London, constituting the largest market. Despite renewed growth in speculative development, many estate holders remain cautious, opting to ‘stay and refurbish’, as a shortage of affordable Grade-A space looks likely to drive up demand for high quality refurbishment. As a result, retrofit refurbishment and remodelling of existing space into Grade-A space is providing the main focus for occupiers over the short to medium term, says the report.
In the retail sector, where Hannaford is a specialist in high-end fit-outs, store conversions and interior refurbishments, especially among the grocery multiples, are far more significant areas of activity than new build. The trend towards online shopping, changes in consumer food shopping habits and the changing composition of the High Street are among factors driving these changes. Reductions in government capital spending in education and healthcare have forced a significant shift in development programmes from new build to lower cost remodelling and refurbishment of existing buildings. Hannaford is currently working within the care home sector, undertaking a number of upgrade projects for a major organisation.
In the education arena, the conversion of Local Authority supported schools to Academies and Free Schools, the creation of new primary school places and the Priority Schools Building Programme (PSBP) are all factors driving demand for fit-out and interior refurbishment, an area in which Hannaford has recently become involved. In the higher education sector too, there are significant opportunities for fit-out and refurbishment work going forward, as universities remodel their capital programmes to meet revised funding expectations. The main emphasis on construction projects in the higher education sector is now towards refurbishment and upgrade of existing facilities as well as ongoing maintenance and improvements and less towards new build projects, unless privately funded.
According to the research, the outlook for fit-out and refurbishment work in the leisure sector remains mixed with significant expansion plans announced by the budget hotels, hospitality sector and budget fitness clubs, contrasting with less buoyant prospects for sectors such as the betting industry. This would square with Hannaford’s outlook, as the St Albans based commercial joinery and fit-out company is currently working on a fit-out for a major London restaurant chain, as well as a number of other privately funded projects.
During summer 2016 the general feeling in the fit-out market has been one of waiting for the fallout of ‘Brexit’, effectively placing a pause on expectations. Notwithstanding this, there was an expectation that input costs (labour, plant, materials) would continue to increase after the ‘Brexit’ vote, regardless of outcome.
Whilst there is buoyancy in the market, the short-term impact of Brexit has led to price increases due to the weak pound but it’s unknown what the effect of leaving the EU will be in the medium term. At present, industry commentators report little evidence of schemes being cancelled or put on hold, although uncertainty over the future direction of the economy may put off some investors.
Unsurprisingly, the research found London remains the most active in terms of redevelopment activity but regions outside the capital are benefiting from the heat of the London market, with developers starting to invest in areas surrounding major cities such as Cardiff, Bristol, Watford, St Albans and Oxford.
According to Richard Williams, Finance Director for Hannaford, the market for fit-out and refurbishment still has plenty of opportunities for 2017 and beyond:
“Hannaford has been around for over 70 years, during which time the market has been cyclical in nature, in line with the wider economy. As we’ve diversified our commercial joinery and project management expertise into new markets, however, the business has increased its capacity and we forecast another busy year ahead, particularly within the hospitality, care and education sectors.”