_Are the days of landlords recovering dilapidations sums for repair of offices over?

Ten years ago, we were coming off the back of the Global Recession and office design was poor. The spaces available all looked the same; sterile, white floorplates with false ceilings, floors and finishes. Basements were used for parking and storage, and roof space was used for plant and equipment. Landlords could expect to recover significant sums from their tenants to return their office suites to a standard CAT A specification at the end of their leases and take it back to the market. 

The rules have now changed dramatically in office design for major cities, with the Co-Working phenomena changing office use forever. Tenants are now far more demanding of the space they are taking. They want space with character, something that leaves a lasting impression. This has fuelled ‘Space as a Service’. Across the UK, third party co-working providers have grown rapidly in a short space of time, according to Knight Frank research. In 2019, take-up attributed to co-working providers represented 16% of total market. This is up from 12% in 2018 and a vast increase when compared to a long term annual average of 2%. 

Landlords are adding in a service and amenity layer to their offering in response. They are having to use design to attract tenants and are learning from the leisure and retail sector when designing their spaces. The constant advancement in more energy efficient mechanical & electrical services is driving betterment in the working environments. As a result, the days of traditional CAT A specifications are over. 

So as the ten plus year leases taken in the early part of the twenty first century come to an end, we are having to think differently when advising landlords and tenants on their office space and what affect CAPEX will have on their dilapidations claims.

No longer can a landlord simply expect to recover sums from their outgoing tenant to fund the refurbishment of their space. Well advised tenants now understand the market requirements and the implications of supersession on a landlords dilapidations claim for repair. The goal posts have moved and investors and landlords need to consider this when forming their business plans, to ensure that they have suitably accounted for their expenditure to reposition their office assets.

The question is how long will this last? Could this just be a correction in the cycle as the way we occupy office space changes or is this the future for office dilapidations.

For more information contact the Knight Frank Building Consultancy Team.