The impact of the COVID-19 outbreak on China's real estate and construction industries is still ongoing. Over the past year, markets are still grappling with the COVID-19 pandemic and its impact, and common issues such as labor shortages, material shortages and supply chain disruptions remain the main factors driving up China’s renovation costs in 2021.
While a number of factors have contributed to the increase in construction costs in 2021, such as supply chain disruptions and rising raw material prices, there are signs that these are not necessarily related to the pandemic. China's response to the outbreak is slowing as the market gradually returns to "normalcy".
As the mobility of workers in China's personnel construction industry increases, the labor shortage faced by markets that rely on foreign labor will be alleviated. We also observed a renewed commitment to sustainability in the industry, with continued upgrades of office space to enhance the workplace experience for employees.
We hope this 2021/2022 China Tooling Cost Strategy will provide you with useful information for capital expenditure planning and help you make informed decisions.
For more information, please contact our professional team.
› Average renovation costs rose 10.8% year-on-year. Most markets have seen price increases in 2021, reflecting the widespread impact of labor and raw material shortages; supply chain disruptions and labor mobility have accelerated price increases. These core elements were mentioned in all the cities we surveyed.
› Although Shanghai has been the most expensive city for renovations in mainland China for five consecutive years, its renovation costs edged down by 1.3% year-on-year. Despite rising raw material costs, the upward pressure on labor costs that have driven prices up for years has eased, and renovation costs have also declined. The price gap between Shanghai and its closest fitting-out market has shrunk by half.
› Electricity constraints and rising raw material prices are the main factors affecting costs, mainly driven by the continued increase in coal prices and stringent carbon emissions targets. In addition, driven by the normalized control of the new crown epidemic, China has promulgated some measures to curb the increase in confirmed cases, and the resulting impact has gone beyond China itself, but is related to the entire Asia-Pacific region.
› Construction costs in major Chinese cities will also rise sharply in 2021, especially M&E-related costs. The second wave of the epidemic in the first half of 2022 has dealt a severe blow, leading to a severe shortage of building materials in the country. With the gradual relaxation of various epidemic prevention restrictions, the demand for building materials has begun to rise, but it is difficult for suppliers to respond quickly, which has also directly led to a large shortage of materials. The impact of the global epidemic on the supply chain has further exacerbated this situation. A supply and demand imbalance.
In the context of the normalization of the epidemic, the remote office or hybrid office model plays a key role, and it is believed that this trend will continue. According to research, employees expect to telecommute for an average of more than two days per week; this also shows that while businesses will adopt customized strategies to maintain flexibility in life and work based on business needs, employee mood, location and many other factors.
Upgrading the built environment in a sustainable and responsible manner is creating immediate value for groups such as owners, tenants and investors; these values are mainly reflected in risk mitigation, expected asset appreciation and rent increases, lower operating costs, and A work environment that enhances productivity and attracts and retains talent. The study also showed that 70% of companies are willing to pay extra for green-certified buildings to achieve their sustainability vision.
Based on current discussions with clients, where do you expect spending to increase over the coming year?
Our renovation cost survey has once again verified a similar view. First of all, when answering the specific increase in spending on office space decoration, the interviewed companies indicated that spending on audio-visual, electromechanical, sustainable development, furniture, health facilities and partition design will all increase in the coming year.
These all point to three key strategies that companies have implemented during the epidemic:
› Increased AV and IT spending, continued hybrid office model, more flexible office space
› Commitment to increase electromechanical facilities and promote sustainable development spending to protect employee safety and improve office comfort
› Increased spending on furniture and wellness facilities to transform offices into spaces that foster collaboration and encourage creativity
The breakdown of each renovation cost is different from last year:
› Refinement of the functional division of space has an impact on costs, with the average renovation cost of modern and traditional styles up to 24% higher than that of avant-garde styles.
› Construction cost engineering accounted for 41% of total renovation costs.
› The share of M&E works closely follows the construction cost, accounting for 1/3 of the total renovation cost.
› Following last year’s gains, AV and IT spending growth remained steady, reflecting continued workplace upgrades to support hybrid office models. As the demand for AV technology expands further, it is recommended to spend more on basic AV and information technology, and to increase additional allowances in this area.
A breakdown of common renovation costs
(Take the avant-garde medium-sized decoration style as an example)
It remains to be seen whether the recent price gains will continue or stabilize over the next few years as markets recover. In the face of the new crown epidemic, the response strategies of various markets in China are different. Whether it is to respond to it as common flu or to eliminate it, these recoveries are individual phenomena. It is difficult to accurately predict the trend of decoration costs next year. Renovation costs will rise in some markets in the coming year, and we summarize some key factors that may affect future costs.
| Price Increased | Price Drop |
|---|---|
| › Labour shortages, especially in markets that rely heavily on foreign labour. | › Weak office space demand and higher lease renewal rates have led to an overall reduction in fit-out demand. Contractors may make price adjustments to ensure cash flow. |
| › COVID-19 response measures, including temporary lockdowns, mandatory vaccinations and mandatory health safety measures, have reduced the number of available workforce workers. | › Due to social distancing regulations, less work is being done offline, requiring more efficient construction options. |
| › Seek out alternative sources and sources of expensive local materials to mitigate the risk of project supply chain disruption. | › Shift to procurement models that allow for maximum competition. |
| › Risks associated with spreading COVID-19 through supply chains, which have become foreseeable risks in construction contracts. | |
| › Increased sustainability-related measures, mainly driven by employee experience and corporate policies. |
EDS Interior Design is a company that provides a full range of commercial space interior decoration design and construction services. We specialize in commercial, retail and residential projects.
As one of the leading interior design firms in Shanghai, we are staffed by experienced professionals in the fields of architecture and engineering who will assist you every step of the way from the conceptualization stage to project completion. We provide the highest quality service and uphold only the highest standards.
