Landlords with too much office space, too few tenants and the prospect of void rates could take advantage of significantly lower tendering prices for refurbishments as a way to attract and retain tenants, according a leading property consultant.
The advice, from David Martin at GVA Grimley, is driven by contractors being forced to hold or reduce prices for refurbishment work, despite rising material prices, skilled labour shortages and an adverse exchange rate, in order to secure tenders in the face of rapidly declining demand and stiff competition.
The ability to offer lower priced refurbishments, aided by falling fuel prices and a reduction in VAT, is a potential lifeline to landlords who are concerned about attrition rates among their tenants who have the pick of grade A space in the City.
Of the 434,000 sq ft of office space which came online in Birmingham last year this year, only 8 per cent of this total has been let prior to completion. This will add to the circa 243,000 sq ft of grade A space already completed, which remains available and the further 452,000 sq ft due to complete in 2009.
Mr Martin, a director in Building Consultancy at GVA’s Brindleyplace office, said: “Many landlords are justifiably concerned that this is a buyer’s market and they have their jobs cut out to retain, let alone attract new tenants. However, refurbishment, as a way of upgrading office space to make it more attractive, is becoming increasingly cost effective and could offer a safety net.
“In this economic environment, any contractor who has a shortfall of work going into 2009 will probably be willing to significantly reduce prices to ensure they can keep going. There is a very strong argument to suggest that this is a good time to tender projects.”
Martin believes many landlords have been put off refurbishment projects in recent years due to historically high raw material and labour costs which have pushed prices up. Construction materials have risen in price over the past 4 years, faster than any previous time, largely driven by increasing world commodity prices and demand from China and India.
“The result is that contractors have no room for manoeuvre in terms of material prices, but they are willing to cut their own margins in order to secure work. Landlords can take advantage of this,” added Mr Martin.