Why Office Fit-out Firms Must Innovate to Thrive Post-Covid

There’s no doubt that 2018 was a stellar year for fit-out contractors and the office development sector in the UK, while 2019 brought about a period of relative calm and consolidation for brands.

However, many contractors specialising in interiors and office fit-outs have seen their workloads falter and profits slide though 2020, against the backdrop of coronavirus and the subsequent trend of working from home.

This is despite increased optimism in the commercial building sector, with this yet to translate within the wider office fit-out market. But how is the market suffering, and how can forward-thinking brands survive and thrive in 2021?

A Glance at the Office Fit-Out Market

If we glance at a selection of the 20 leading fit-out contractors on these shores, these entities recorded a nominal 3.9% increase in turnover in 2020 (from £3.4 billion to £3.6 billion overall).

While this at least represents positive (albeit minimal) growth, it compares poorly with last year’s 21% growth in revenues, while highlighting the challenges posed by diminishing client demand.

Not only this, but profitability has also suffered during the reporting period, with pre-tax gains amongst the same firms falling by 14.3% by the end of 2020. In purely financial terms, this represented a decline from £126.3 million to £108.2 million, while the average pre-tax profit margin contracted to just 3%.

Interestingly, the composition of the top-20 firms in this niche changed when compared with 2019, as three entities ceased trading due to ever-depreciating profits.

The highest-profile casualty was Manchester-based firm Styles & Wood, which ranked number three in terms of company value last year but collapsed in February with debts in excess of £100 million.

This liability was partially linked to the brand’s parent company Extentia, who had previously procured the loss-making Styles & Woods brand for a discounted £50.4 million in December 2017.

Despite significant shareholder investment through 2020, this firm had to absorb huge and sustained losses across a diverse range of commercial projects, as workloads continued to dwindle nationwide.

Why There’s Light at the End of the Tunnel for Firms and Investors Alike

While these numbers are unlikely to excite office fit-out brands or potential investors, there is light at the end of the tunnel within this marketplace.

To begin with, the level of demand and growth varies from one region to another, with some areas performing significantly better than others. Take Glasgow, for example, where there’s actually an increased demand for commercial office space that continues to supersede the supply of Grade A premises.

So, although total investment levels in Scotland declined to £1.3 billion in 2020, (from £2.1 billion during the previous year), the increased demand for office space may create potential workloads and money-making opportunities for the leading fit-out contractors in Glasgow and neighbouring regions.

However, the nature of the opportunity has evolved as a result of the coronavirus pandemic, with interested clients increasingly in search of bespoke and socially distant office spaces that are safe, manageable and tailored to suit businesses in specific industries.

Make no mistake; the fit-out brands that recognise this trend are the ones most likely to thrive through 2021, while these entities will also be the most coveted amongst investors and clients alike.

Companies like Amos Beech have evolved this way of thinking even further, by adopting an increasingly agile and collaborative approach that seeks input from both landlords and developers.

This inspired the brand’s recent office fit-out in the Fugro location at the Hariot Watt Research Park, which saw a total CAT A fit-out that tailored everything from ceiling heights and partition placements following proactive and in-depth consultation.

The Last World

When we apply this new and collaborative way of working to a post-coronavirus world, it’s easy to see how innovative and forward-thinking fit-out companies can help to restructure and reimagine office spaces in the wake of the coronavirus pandemic.

This will prove to be particularly important if social distancing requirements remain in place, especially if businesses are able to optimise their available space while complying with recommendations relating to the pandemic.

From the perspective of investors and the wider marketplace, the most innovative firms will emerge as key drivers of growth and speculation in the near-term, as they begin to identify opportunity amid an ongoing disaster.