Unlocking creative funding opportunities for corporate occupiers to relocate or refit

Bathobile Mahlobo, Associate Director and Grant Kirchmann, National Director: Corporate Solutions, JLL SA, explore innovative finance solutions worth considering, to overcome the prohibitive costs of tenant installations. Many occupiers end up taking longer leases to be able to amortise the costs over longer periods which in turn affects the balance sheet adversely.

August 28, 2018

For many businesses, real estate is not part of their core business. The decision whether to remain or relocate is often hampered by the cost to fit out their new offices. Investing capital in a new office can compete with investing in the company’s core competency / working capital. Very few companies have the budget or capital, required to relocate to more suitable premises or futureproof existing workspaces. The high costs of creating that innovative office environment can be a real obstacle in being located in an optimal location, enhancing the workplace experience, attracting and retaining the right talent, for example, R5,000 per/m2 is substantial capex exposure for any business when considering a new office build out, often excluding furniture, IT equipment and professional fees.

There are various instruments available in the market to solve this age-old problem. It’s a scenario that requires innovation around funding and lease structuring to enable office users to occupy built-to-suit workplaces relevant to dynamic and changing business strategies. Whether your company is expanding, consolidating, or refreshing the look of the office environment, your real estate should enable, not hamper your ability to do business.  The office environment should attract and retain talent and represent your corporate brand image.

What if you could turn real estate capital costs into operational expenditure?

By introducing tenants to a new funding structure that seeks to repackage tenant installations as an operational cost, large upfront capex costs can be amortised over the term of a lease. These financial structures smooth the costs over the lease, avoiding a capex bullet payment upfront, which capex could be Employed back into the business.

The financial model incorporates everything from fixed and movable assets and lease deposits into one funding solution. All the financial obligations of a tenant’s installation are funded during the lease term rather than upfront as a once off payment… for example, a business needing to outlay  R10m for new racking, financing this infrastructure upfront is often inhibiting, so the ability to amortise the cost over a longer period and still achieve your business goals is valuable.

An additional value add caters for the selling off of outdated AV equipment on termination of the lease, generating capital to purchase/refinance new updated technology.

These finance structures provide office users with the opportunity to create the right environment for their people and their clients and ensure sustainability within the business.

Consider the impact of the workspace environment on talent attraction, retention, productivity and engagement, the impact of the most suitable tenant installation for your business is a far less cost than the risk of operating in a non-conducive environment.

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