How do I know how much to allow for my office fitout budget?
When you’re planning your new office, relocation or refurbishment, it’s really important to establish the budget right the first time. We find a lot of people run into trouble when they have created a budget number, a budget allowance has been granted or they have a fit out allowance being granted to them by the landlord as an incentive to move in and they use that to establish their budget.
Then off they go out to the market and find, to great disappointment, that they can’t go ahead with the project within budget. We had one project, a global company who had set a budget, and the project had to go ahead regardless. They were being forced to move because their lease was being terminated and their building was getting demolished. Then they found they were significantly under budget, more than half over budget. This meant that the CFO and the CEO both lost their performance incentives. Management ended up getting the rap for the project going way over budget, but if they’d got industry guidance first, they would have been able to establish those numbers accurately up front and avoid the disappointment.
One of the key issues we find with people’s budgets that they pull out of the air is that they have failed to include the cost of air conditioning. They check the site out and notice it has air conditioning, and assume they can move in. However, it may need $25,000 worth of work. We worked on a site in 181 William Street, and the air-conditioning was $150,000, so they were $150,000 out before we even started.
It’s crucial to get the budget right before you set it in stone and then try force providers in the market to achieve an unrealistic budget. You must achieve all the compliance parts of the project, e.g. air conditioning, fire services to gain legal occupancy of the space.
Sometimes there is a little bit of saving grace that we find bigger companies who have allowed for say, $100,000 in IT. Potentially only about a third of that is going to be used for new equipment and the rest of it was for cabling and they didn’t realise that the cabling is done as part of the build in the new fitout.
Other problems we find when clients haven’t allowed enough budget, is they are disappointed with the quality of furniture that goes in. They are upset that they can’t get the nice things they were envisaging from the start. This is because the money has disappeared in all the compliance, air conditioning, sprinklers, smoke detection etc. You can’t cheat on the quality of carpet, lighting, glass or partitioning. All these things must be done, then people are left looking at the furniture offering saying, ‘we’re not satisfied’.
We suggest that you get proper fitout budget guidance before you lock it in stone. Another project we had to do with, was a global company, and they had a whole business case for relocating down the road in Vermont. They hadn’t allowed for a significant portion, which was the construction of a mezzanine to create storage/ offices underneath and offices above. And when the crunch came, they didn’t have enough money for air conditioning, so it couldn’t be used for the intended purpose, it could only be used as storage.
This was a big company, how did they get their budget wrong? They didn’t get budget guidance first. We suggest that you get industry advice first. We’re available to help you through the steps. We can assess the site and see what are the things that could impact your budget and ensure you’ve got enough. One of the topics that can pop up on bigger sites, say more than 800sqm, or any new builds, is landlord conditions. Landlords can have conditions on the construction, e.g. you must use a specific mandatory essential service provider for items such as air conditioning, fire sprinklers, smoke detection. For example, the lease can say the incoming tenant shall pay without restraint the nominated supplier of these particular items. The number that you could have allocated in your budget for air-conditioning could be an industry allowance, and all of a sudden that number is hugely variable and the lease puts no cap on what the nominated provider can charge you.
We’ve seen all the pain people go through. We’ve seen the disappointed faces, and we know that there’s ways to avoid this. We can help you get it right the first time. Seek advice early before the lease is signed, when you’re assessing this space, and we can get all those numbers for you to ensure you get it right the first time.
Some other videos in this series that you may be interested in: