Surmounting Project Management Risks and Challenges in Asia Pacific

Macroeconomic and geopolitical headwinds have pressured distribution networks and revealed vulnerabilities in supply chains across Asia Pacific since the onset of the pandemic, with the region’s manufacturing powerhouses among those most affected.

Disruption to production amid the Delta variant-driven surge in COVID-19 infections beginning in mid-2021 was severe, forcing several countries to introduce strict lockdowns to contain the spread of the virus, leading to the temporary closure of numerous manufacturing facilities.

Although the emergence of the Omicron variant earlier this year also caused significant disruption, most Asia Pacific markets informally adopted a policy of living with the virus towards the end of 2021. This has led to the gradual alleviation of supply chain bottlenecks caused by large-scale lockdowns, manufacturing shutdowns and restrictions on the movement of factory workers.

However, a certain level of global and regional disruption will persist in the short- to- medium term, preventing supply chains from normalising to pre-pandemic levels. Much of this is due to ongoing border controls in mainland China, Hong Kong SAR, Taiwan and Japan, which continue to constrain the manufacture and transportation of materials.

These supply chain bottlenecks are leading to significantly longer timelines for commercial build-out and tenant improvement projects across the region as construction materials are scarcer and require increased lead times.

While potential solutions include pre-planning and early ordering of longer lead time items, supply chain disruption remains a key challenge for project construction at present.

 

The rising cost of shipping, along with higher congestion, has stressed supply chains over the past 18 months, with incidents such as the Suez Canal Blockage and port closures in Shenzhen and Ningbo driving up container freight prices. 

Container shipping costs remain elevated, with those in mid-June 2022 more than double January 2021’s levels. Global port congestion is projected to last for the duration of this year, with the re-opening of Shanghai and resulting backlog of shipments likely to create further upward pressure on global shipping costs and leading to increased delays, elevated uncertainty, and higher prices for office construction and fit-outs.

In response, CBRE’s teams have been pursuing several mitigations such as locating alternate sources to buy and finding and developing local supply alternatives.

The pandemic and the Russia-Ukraine conflict have combined to push up inflation globally. The onset of the Russia-Ukraine conflict in February 2022 has driven up energy prices, particularly for oil and gas, compounding the challenges facing regional supply chains. While inflationary pressure in Asia Pacific is relatively milder than that in the U.S. and Europe, rapid increases in prices for oil, natural gas and coal, along with agricultural commodities, have led to rising cost pressures for raw materials and components, including many of those required for fit-out projects.

With the cost of materials pushing up construction prices and leading to the regular requoting of contracts - sometimes on a weekly basis - CBRE’s approach is to manage expectations by including suitable allowances and escalators within budgets from the start; ensuring early contractor involvement; and steering the use of designs and materials away from potentially volatile areas.

 A lack of skilled and experienced project management staff is a common theme across many markets in the region, with the best employees often lured away by clients or competitors offering substantial salary increases.

In some markets such as Taiwan and Japan, there is a finite pool of talent, with limited English language skills further exacerbating difficulties. In other markets including Hong Kong SAR, increasing levels of emigration have had a compounding effect on the talent shortage.

Other trends impacting the cost and complexity of office fit-outs include a move among corporate office occupiers to optimise their real estate portfolios to reduce costs and facilitate hybrid working. This has led to the introduction and demand for more flexible and collaborative workspaces, which can often prove challenging and costly to design and build.

With net zero becoming a key priority for corporate occupiers in Asia Pacific, there is growing demand for office fit-outs to meet higher sustainability standards and achieve certification. Common solutions such as installing energy efficient-lighting and air-conditioning and using recycled and/or sustainable materials will inevitably push up costs, at least in the short-term.

More than half of the respondents to CBRE Asia Pacific’s June 2022 Occupier Leasing Sentiment Survey stated that new fit-out costs had risen by 10% or more compared to pre-pandemic levels, with Australia, Japan, India and Singapore all witnessing particularly sharp increases in prices.

In response to rising costs, occupiers are adjusting fit-out budgets or requesting landlords to provide them with longer fit-out periods. In the retail sector, fit-out periods of as long as six months are becoming more common.



Rising construction costs are a key concern for both clients and contractors, moving up from 6th place in 2021 to 1st place this year after ranking just 12th in 2020. This challenge is further reflected in construction cost inflation figures, with costs in most Asia Pacific markets rising between 10 - 15% since 2020. Japan and Singapore have seen the largest increase in costs, followed by some Pacific and Greater China markets. Turner & Townsend forecasts a further 3-10% increase in construction costs in 2023.

Principal contracting involves a single team delivering every aspect of a project or programme, from managing contracts with the construction supply chain to managing health and safety responsibility. This can help corporate occupiers alleviate many of the challenges that are impacting the complexity, delivery and cost of corporate office fit-outs.

Principal contracting can reduce risk to clients and improve speed to market by exerting greater control over supply chains and delivery; an approach CBRE has already adopted across several markets and projects.

The de-risking of projects and programmes is seen as a key factor when selecting this procurement method. Greater time and care is also being spent to educate and explain to clients as well as consultants and contractors that the procurement process has become a lot more challenging and complex. 

By completing elements of the fit-out design in individual packages, this enables early procurement and shorter project times as there is no need to wait for the entire design to be completed. 

Previously among the last departments to be brought into conversation with corporate occupiers planning new fit-outs, construction management teams are increasingly engaging with clients at an earlier stage as lead-times lengthen. 

Construction managers are now playing a far more prominent role at the onset of capital programmes by performing due diligence, procurement processes, identifying ESG issues and generally mitigating upfront risk. CBRE has key in-house expertise for technical, environmental and ESG due diligence, pulling together deep asset insights and data for a commercial approach to due diligence, including a focus on the most valuable and complex technical issues. Technical due diligence helps highlight potential risks, identifies and quantifies potential liabilities, and puts clients in a much stronger negotiating position. CBRE can assess the quality and condition of everything from building structures and facade systems to engineering services installations, measuring performance against national and international energy legislation and sustainability agendas.

A design-led approach at the commencement of a fit-out project is essential as it ensures architects, contractors and the client can optimise cost efficiencies, effectively manage labour and formulate more effective scheduling.

Design-led construction remains centred around the business, with meaningful engagement with employees as part of the process leading to developing quicker, exceptional, more relevant and achievable solutions. 

The design-led process aims to successfully bridge gaps between culture, space, and business objectives to help accurately price, budget and deliver optimal workplaces that enhance employee satisfaction, client engagement, and brand recognition.

CBRE believes net zero alignment should also be factored into design-led construction trends as many clients have focused on meeting their 2030 or 2040 objectives without developing a clear roadmap to understanding how to achieve this. Building these objectives into designs and the supply chain structure will be critical to achieving these goals.

To mitigate price inflation, project management teams, including CBRE’s own, are engaging in bulk buying in selected markets to consolidate costs across clients. For example, if several clients require office furniture, project managers will purchase large quantities to reduce costs. This strategy is also being used for IT/AV equipment as well as some long lead Mechanical, Electrical and Plumbing (MEP) items, for which project management teams are pursuing a programmatic buying approach as opposed to project by project and storing key items to further mitigate lead times.

With supply chain disruption, transportation bottlenecks and inflation pushing up the cost of materials from previously low-cost markets, project managers and contractors are increasingly seeking suppliers closer to home, ideally in their domestic market, to mitigate related risks.

As with the other solutions detailed in this report, it is essential that project management teams engage clients as early as possible in this process.

Although pursuing higher sustainability standards by using environmentally friendly materials and features may push up the cost of fit-outs, corporate occupiers that fail to pursue a greener approach to their offices or other real estate will face significant financial challenges in future resulting from regulatory non-compliance and closer scrutiny from investors and lenders. 

Project management teams can help corporate occupiers meet their ESG targets while driving down long-term costs and responding to growing workforce demand for better wellness and sustainability performance.

Landlords must enhance indoor air quality and incorporate green building features and operations to meet occupiers' requirements for a healthier work environment. Sensors to monitor air quality will be keenly sought-after as lingering pandemic-related concerns prompt companies to improve air ventilation and filtration in the workplace. 

With healthy building design taking centre stage, office design is becoming more wellness and health orientated. High standards of sustainable design will be expected to support worker health, sentiment, and productivity, with consideration given to air quality, thermal and acoustic comfort, and access to natural daylight. 

A push for sustainability will be an increasingly attractive differentiator for organisations seeking to take greater care of their people, while at the same time highlighting a need for social responsibility and accountability around the condition of the environment.

CBRE’s proprietary design and build product, Office Ready, incorporates these design trends. Office Ready was developed with employee safety, wellness and sustainability in mind, with special consideration to materiality, acoustics, lighting, ergonomics, and placing a balanced focus on personal space alongside shared space. This approach removes the complexity of office build-outs by facilitating quicker and more cost-effective delivery, while still ensuring that the office remains high-quality, high-functioning and move-in-ready. 

With many corporate occupiers having committed to achieving net zero emissions by 2030, they must take aggressive action now as part of their post-pandemic real estate strategies. Providers such as CBRE and Turner & Townsend now offer ESG solutions and Net Zero Strategies that mitigate environmental risk, improve carbon footprint, assess and certify buildings, and enhance sustainability and wellbeing.

As corporate occupiers right-size real estate portfolios to optimise cost efficiencies and facilitate hybrid working, project management teams will be at front-and-centre of the shift towards upgrading offices to make them more attractive for returning employees.

With the adoption of hybrid working allowing more focused work to be performed remotely, the office will increasingly become a location for discussion and collaboration. In-office collaborative and focused workspaces will be designed and managed to accommodate hybrid ways of working, with new workspace settings, depending on varying performance and operating requirements, shining a spotlight on creativity, connection and community. 

In this way, workplace interior design can shape workplace behaviour, shifting incidental collaboration to purposeful collaboration that stimulates employees to create a more effective workforce. Office design will be re-imagined to create unique experiences to form a cultural hub for employees, housing a multitude of interconnected and collaborative workspaces, with enhanced amenities and stylised work settings.

With enterprise clients moving some teams into co-working spaces, project management teams will also have a role to play in providing spec-suites and turnkey solutions for corporate occupiers as well as working with landlords keen to provide ready-made space for tenants to quickly move into.