Financing an Office Fit-out: A Guide for Landlords

In today’s post-pandemic world, more commercial tenants than ever before are seeking flexible working environments that simultaneously support their business objectives, budgets, growth plans, environmental commitments, and recruitment strategies.

To ensure that you are offering existing and potential tenants what they need not only to operate but to thrive – and can maximise the financial potential of your property – it is vital that you are aware of these demands and market trends and respond promptly. Of course, funding projects of this kind requires a significant investment which can cause delays, compromise, and/or financial strains on your working capital.

For many, the best course of action is to invest in an office fit-out project but, rather than paying in cash up front, to pay for it over time via affordable finance. This enables landlords to create the space they want while retain working capital and unlock tax savings.

What are the different classifications of office fit out?

If you are considering building a new commercial space or making improvements to an existing one, you may encounter at least one of the following terms in your finance conversations. There are 4 categories which cover the various stages of building condition during the design and build phase.

They are:

  • Shell & core
  • Cat A
  • Cat B
  • Cat A+.

What is a shell and core fit out?

‘Shell and core’ is the term for a building before a fit-out has taken place. It refers to the structure, such as a concrete and metal frame of a weather-proofed space that may look complete from the outside but is missing services like lighting and air conditioning.

What is a Cat A fit out?

A Cat A fit out is the basic finishing of an interior space, this type of fit out includes the installation of a building’s mechanical and electrical services. A Cat A project will also include finished internal walls, reception areas, lift lobbies, raised metal flooring, painted perimeter walls and a grid ceiling with fitted lights.

What is a Cat B fit out?

A Cat B fit out is the term used to describe a fully operational workplace that has been designed to a client’s unique specifications, e.g., building different rooms to choosing interior décor, floor finishes, kitchen facilities, furniture, branding, doors, partitions, lighting.

What is a Cat A+ fit out?

Cat A+ is the term for projects that produce a fully functional office that a tenant can move into and start operating straight away while only having to make minimal adjustments, e.g., the tenant can finish the space with their branding after they have moved in. This might include furniture, workstations, fitted kitchens, power, IT infrastructure, toilets, meeting rooms and social breakout spaces.

A Cat A+ fit out would usually be conducted by landlords to attract new tenants into their office space. Some choose to leave the space as Cat A (which would require the tenant to spend money on finishing it), but A+ fit-outs, also known and a Plug and Play space, is increasing in popularity with landlords who are offering flexible space under built to lease programmes.

What are the benefits of financing an office fit-out?

One of the most common obstacles for commercial landlords is how to fund improvements to their properties, but more and more are discovering the benefits of spreading the costs via finance.

Paying for an office fit-out via a finance agreement allows capital to be retained within the business rather than spent on depreciating assets and enable you, the landlord, and your client to create the space that you want rather than compromising due to budgetary constraints. Financing can also bring other benefits including:

  • Fixed rates throughout the term, irrespective of base rate increases.
  • A fully tax deductible solution.
  • An unsecured arrangement that sits outside existing banking facilities, so other lines of credit will be unaffected.

How much would finance repayments be?

Every finance arrangement is unique and will be influenced by numerous factors including the scale of the project, the duration of the finance agreement, interest rates, and the credit rating/financial circumstances of the applicant. Here is an illustrative example to outline what repayments could look like.

A 5,000 sq. ft suite requiring a £400k Cat A + solution:*

TermMonthly repaymentPotential tax savings
3 years£12,959 + VAT£136,211
5 years£8,440 + VAT£202,839

*Representative figures based on a number of assumptions regarding tax rates and allowances and that the customer is established with strong financials. Correct as of January 2023.

Interested in financing your office fit out or upgrades?

Whether you are the landlord of a retail space, restaurant, office block or an industrial unit/warehouse, Bluestone can secure finance for a range of projects from a simple furniture refresh to a multi-million-pound full fit-out.

We have specialised in providing complete finance solutions for commercial fit-out and refurbishment projects for over 25 years. With access to a large funding panel, Bluestone is ideally placed to secure quick, fair and affordable finance for your office fit out.

Get in touch to discuss your project today.

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