Previously temporary trends are solidifying across occupancy rates, lease lengths and tenant diversity, as discussed by Chris Watkins, Partner at Workman, reported by Green Street News.
Amendments, or additions, to the well-established dilapidations process have often acted as an insightful proxy for changes within the wider commercial real estate market.
Before the enactment of the Building Safety Regulator’s (BSR’s) Gateway process, our dilapidations team saw the initial impacts of the 2022 Building Safety Act – through its increased requirements for safety engineer or fire door surveys when completing previously standard surveys.
Similarly, as GRESB reporting became a key element of the fund management strategies of institutional investors, we saw a greater need from clients for ESG-specific expertise – with defects within external walls or structural elements understood to be a significant barrier to improved EPC performance.
As the post-Covid-19 pandemic market matures, and previously temporary trends solidify, much recent commentary has focused upon emerging trends within occupancy rates, lease lengths, and tenant diversity for larger mixed-use schemes. But we have begun to question whether a less visible – and deferred – consequence of the pandemic is the quiet erosion of recoupable dilapidations costs for asset managers.
Reduced leasing velocity
Nationwide data from our dilapidations team points to a fundamental structural shift in how offices are being occupied. The days of the single, full-building occupier are fading, and in its place is a more fragmented market – where assets are increasingly divided between multiple occupiers, holding smaller floor plates buttressed by communal areas under landlord management.
Some of this change has been driven by occupiers, which since the pandemic have rationalised their space requirements, adopting hot-desking or other hybrid working arrangements. But for stability-driven investors, this broader – and often more diverse – occupier mix has reduced leasing velocity, while ensuring income resilience.
The trend is also shifting landlord risk profiles – with larger asset managers, often unknowingly, now holding substantially expanded lease expiry liabilities. This has only increased due to the elevated costs associated with sustainability and building safety.
Fragmented uncertainty
Historically, the dominance of schemes with single occupiers meant that most asset managers could rely upon on full repairing and insuring (FRI) leases, that allowed for clear, enforceable pathways for recovering end-of-lease reinstatement and repair costs.
Under traditional FRI covenants, an occupier is contractually obligated to maintain and preserve an entire asset’s operation – including structural elements of a building, external envelope, mechanical systems and more.
Upon the completion of a lease, asset managers can expect that the property is handed back in full compliance with lease covenants. If this is not the case, landlords are able to pursue substantial dilapidations claims – where needed – to rectify any issues.
This legal certainty, combined with clear liability for reinstatement of alterations and wear beyond fair use, made the dilapidations process a predictable lever for recovering capex and managing long-term degradation.
Today, this model is less applicable. With a more diverse, and often smaller, mix of occupied space, most tenants are no longer bound by tight FRI responsibilities, while the growing hotelisation of commercial buildings has resulted in a concurrent increase in landlord-managed communal space.
Within newer assets, Internal Repairing Insurance (IRI) leases are becoming standard – wherein occupiers are excluded from structural and external obligations, placing the onus for common area and external upkeep squarely on the landlord or its service partners. For asset managers, this means leaving a potential void at lease end, where repair costs cannot be easily reclaimed.
Our market data indicates that this trend has become almost universal – IRI leases made up 38% of our dilapidations work between March 2024 and 2025, while FRI work has sharply dropped.
Addressing issues
Some proactive asset managers are beginning to address this through their property management approaches, with our property manager partners reporting a noticeable uptick in the strategic use of planned preventative maintenance (PPM) to mitigate potential dilapidations risks before they accrue.
Rather than waiting for leases to expire and pursuing costs through – now reduced – claims, asset managers are now seeking to front-load upkeep to maintain building condition, and hedge against future liabilities.
This proactive approach is not only financially pragmatic, but also operationally necessary. In multi-tenant buildings, coordinating simultaneous end-of-lease works across different demises can be logistically complex and disruptive to occupiers in situ. By embedding a rolling programme of fabric repairs and service upkeep into an asset’s operating model, asset managers reduce the likelihood of capital shock, while smoothing the path for incoming tenants.
Unsurprisingly, this shift is also driving a recalibration of service charge budgets, as landlords also look to recoup the rising costs of communal area maintenance and shared infrastructure over time.
As the office sector continues to adapt to new working patterns and tenant expectations, asset strategies must evolve in kind. Dilapidations are no longer a straightforward recovery exercise – they are becoming a risk management challenge. And that means landlords must be more proactive, more forensic, and more strategic than ever in managing their liabilities throughout the lifespan of the lease – not just at its end.
Chris Watkins, Partner at Workman
A version of this article first appeared in Green Street News.
