Factoring in the cost of dilapidations to rent for serviced offices is likely to be a tricky accounting exercise - e.g. how far into the future should one look when estimating repair costs? How much should be budgeted for contingencies?
Further, how do you account for tenants with unique fit-out requirements which may fall outside 'normal' financial analysis? One way of dealing with it would be through detailed schedules of condition. However, where the occupation is short-term, which tenants will want this up-front expense?
The best way to counteract dilapidations risks is take early precautions, Winter said. “If landlords make sure they have someone to assess what likely dilapidations might occur, for example on a three-year term, then they can recuperate enough for that,” he said. “They then need to make sure that money is saved.” When fitting out a plug-and-play space for a tenant, staying as neutral as possible is the best solution. For example, a landlord could fit dividing walls to create meeting rooms to provide some flexibility and future-proof the space.