Smart financing approaches for landlord assets

Taking the leasing concept further, subscription-based office models represent one of the fastest-growing segments in commercial real estate. This approach, pioneered by co-working spaces but increasingly adopted by traditional landlords, offers tenants membership-style access to workspace rather than conventional leases.

The appeal for tenants is clear:

• No long-term commitments
• All-inclusive pricing (utilities, maintenance, and often fit out)
• Ready-to-use spaces with modern amenities
• Community and networking opportunities

For landlords, the subscription model presents both challenges and opportunities. While it requires a different operational approach, it can result in higher overall returns per square foot when managed effectively.

Traditionally, office fit outs have been treated as capital expenditure (CapEx): large, upfront investments that are depreciated over time. However, forward-thinking landlords are now exploring operational expenditure (OpEx) models that spread costs over the usage period.

This shift mirrors what's happening in many other industries, from IT infrastructure to manufacturing equipment. Rather than purchasing assets outright, businesses are finding ways to pay for them as they're used.

In the context of commercial property, this means financing fit outs rather than funding them from capital reserves. Specialist financing providers now offer tailored solutions that allow property owners to spread commercial fit out costs over periods typically ranging from three to five years.

The advantages of this approach include:

• Preserving capital for other investments
• Better alignment of costs with revenue generation
• Improved cash flow management
• Greater flexibility to update spaces as needs evolve

Higher quality tenants

Quality office fit outs attract quality tenants. By delivering turnkey solutions with premium specifications, landlords can target businesses that value their workspace environment and are likely to be more stable, long-term occupiers.

Competitive differentiation

In markets with high vacancy rates, the ability to offer fully-fitted spaces without requiring tenants to manage their own office interior design projects provides a significant competitive advantage.

Value enhancement

Well-executed fit outs increase the overall value of the property asset. By financing rather than deferring these improvements, landlords can enhance their asset's worth while maintaining healthy cash flow.

Maximising tax benefits on fit out costs

Beyond the immediate financial benefits, there are significant tax advantages that make fit out financing particularly attractive.

Based on these emerging trends, here are key strategies for landlords looking to optimise their approach to commercial fit out costs:

1. Evaluate ownership vs. management

Consider whether capital is best deployed in property ownership or in enhancing and managing spaces. Some landlords are finding higher returns by focusing on operational excellence rather than asset accumulation.

2. Develop flexible offerings

Create tiered options that allow tenants to choose their level of commitment and service. This might range from traditional leases to fully-serviced membership models.

3. Partner with financing specialists

Establish relationships with fit out financing providers who understand the commercial property sector. These partnerships can become a competitive advantage when marketing spaces to potential tenants.

4. Focus on turnkey solutions

Wherever possible, offer ready-to-use spaces that remove barriers to occupancy. The premium this commands typically outweighs the investment required.

5. Leverage tax opportunities

Work with specialists to ensure you're maximising available tax benefits related to commercial fit out investments. The savings can be substantial and are often overlooked.