At one level, this is not difficult to understand. A glance at the skyline of central London reveals more cranes than at any time since the 1980s and, unlike then, the majority of the buildings are pre-let. In addition, occupiers are still taking leases shorter than the 25-year deals that were the norm until the end of the 1980s boom.
The rise of the dynamic e-business sector has also played its part in changing the face of the fit-out sector. Not only has this technological revolution prompted specialised demands from clients, in terms of cabling and cooling, but it has also forced them to restructure more frequently.
Willmott Dixon's fit-out subsidiary, insp@ce, puts the value of the fit-out market at £1.9 billion. 'Interior fit-out is a significant and attractive market,' says managing director John O'Neill, who has recently followed up the launch of the company with the opening of a new office in the City of London. 'It is also more resilient than general construction to economic cycles and it has higher net margins driven by the urgency of delivery outweighing lowest price,' he says.
It is not surprising that Willmott Dixon jumped at the chance of branching into a sector that has a relatively small number of competitors with a turnover of more than £25m.
However, to explain the recent frenetic activity in the fit-out industry purely in terms of opportunities for new entrants would be superficial. The picture reflects two dynamics that have interacted to shape the industry over the last decade and which seem set to continue.
It is probable that in the eyes of a layman, a fit-out is characterised by jobbing builders able to turn their hands to any task that needs doing. But if this ever was the case, this image began to disappear ten years ago with the entry of US firm Nico into the UK. Players in the market say Nico brought an unprecedented level of specialisation to the fit-out sector. 'Their dry-wall specialists do nothing but dry walls and have a course equivalent to a full apprenticeship,' says one observer.
This creates not only a faster and better quality job, but allows management systems to be introduced, speeding up delivery further. And in an industry where jobs must be completed on time, the trades employed tend to be very specialised – there are no 'muddy boots' builders.
UK companies were quick to replicate Nico's approach, and Interior – then Stanhope Interior – was one of the first. 'There were no specialists,' says Interior's marketing manager, Julian Barlow. 'But just as ten years ago there wasn't a perceived fit-out business, now clients are increasingly demanding one-stop shops.'
He points to Interior's parent company, ISG Group, whose subsidiaries have all played a part in setting up software firm Electronic Arts' home. Exterior constructed the headquarters building, Interior fitted it out, and ISG's facilities management arm, Eurica, now manages it. Indeed, there's a possibility of more fit-out work if reconfiguration continues, as seems inevitable.
Barlow also cites the proposed acquisition of Trillium, which manages the DSS estate for the government, by Land Securities. 'Trillium is about a complete occupancy service,' he says. Land Securities' chief executive, Ian Henderson, said the deal would 'enhance the firm's tenant offering'. Trillium's DSS activities are also a good measure of the fit-out market's strength as, through this one client, Trillium has become the largest furniture procurer in the UK, with 4% of the market.
The fit-out sector is also having to respond to occupiers who are not only changing more frequently, but who are also demanding more.
Len Coghill, managing director of HRSL, part of Henry Riley Group, says: 'Modern offices need to be higher specification. Internet businesses, for example, need particular types of space.' As well as demanding cabling requirements for complex networks, he says, they also need flexible cooling systems.
Interior's Barlow adds that mobility has created new demands, with the need for reliable docking points for laptop computers. 'The IT infrastructure is a key element [of fit-out] and the need to take its growth into account is core,' he says.
This presents real challenges. Coghill notes that the standard network cable known as Cat 5 may be superseded by Cat 6, and that, more significantly, both could be overtaken by wireless communications. Also the increasing popularity and falling cost of flat-screen technology could revolutionise any remaining desktops, prompting a wave of refitting.
But increasing churn is not only driven by technology. Mike Howard, managing director of Maris Interiors, believes that falling unemployment and the resulting competition to attract staff is putting quality of the workplace – not just layout and specification – back on the agenda.
'We have a client we are fitting out: one of its rivals moved to new offices and the client said it wanted a better fit-out than them,' he says. 'There is a higher level of consciousness.'
Attracting and retaining staff is a big priority, and companies are increasingly pouring resources into peripheral areas such as in-house catering. 'It's huge – I'm talking about every office now,' says Howard. However, it is not just about putting in more and better tea points, kitchens or even staff canteens – café areas, especially in call centres, are being designed to look like West End venues such as Starbucks.
Howard admits that 'really sexy design' is used not only to attract prospective staff, but also to get more out of people while they are in the office. The current vogue for 'breakout' space, for example, is intended to foster informal meetings and idea sharing in a café atmosphere.
In addition, clients are much more concerned about image. 'Clients say "We want a facility that is custom-designed and that we can show off and be proud of",' says Howard. 'It's very much design-led, not just fit-out.'
Image consciousness has even filtered down to the fit-out firms themselves. As well as investing in staff training in IT and health and safety issues, companies such as Churchfield are encouraging site managers to take personal development training to improve the professional image.
The rewards speak for themselves. Typical margins are estimated at around 5% for fit-out firms – tight enough to demand discipline, but better than the usual 3% in the construction sector. However, with the rate of churn increasing, Interior's Barlow believes that many corporates effectively reconfigure every 18 months. So, provided that newcomers to the fit-out market can invest in proper training and support technology, they may be on to a winner.
Source
The Facilities Business
