As published in CoStar on 02 May.

Ten years on from a previous review, the need for expert advice has never been stronger. A decade ago, I wrote in this CoStar column that dilapidations had risen sharply up the asset management agenda. Back in 2014, shorter lease terms, competitive acquisitions and a post-recession focus oncost recovery drove a 24% surge in dilapidations instructions across London.

Today, as we approach the 2025–26 wave of London office lease expiries – 32 million square feet, a 23% increase on 2023–24 – the lessons of the past have never been more relevant. Yet the stakes are higher, the regulations and market are tighter, and the need for expertise more urgent. But for savvy investors, these liabilities are not just risks – they’re hidden opportunities.

Sectorally, Hollis’ average dilapidations settlements across the 1,500-plus dilapidations instructions it carries out each vary sharply:

• Office: £23.85 per square foot (highest among sectors)
  Retail: £18.32 per square foot
  Industrial and logistics: £15.72 per square foot

But averages only tell half the story. In the office sector – where reinstatement obligations are often stringent – recovery rates frequently exceed £20 per square foot, with cases surpassing £40 per square foot for leases requiring full reinstatement and/or compliance with modern standards.

Case in point: the £2 million liability – and opportunity

Consider a 50,000 square feet office lease in London expiring in 2025.If lease clauses demand reinstatement to modern standards or minimum energy efficiency standard-aligned upgrades (EPC C by2027), the occupier’s liability could reach: £40 per square foot times50,000 square feet or £2 million.

For owners (or lenders if loans are taken back), this represents acritical recovery opportunity. For buyers, however, it’s a chance to underwrite smarter. The reasons are:

• Savvy purchasers factor dilapidations claims into acquisition pricing, effectively reducing net purchase costs.
  A £2 million potential recovery could justify a higher bid for an asset, provided due diligence confirms enforceability.

From 2014 to 2025: a persistent priority

In 2014, I highlighted how landlords and investors were finally treating dilapidations as a strategic lever, not an afterthought. Shorter leases (then averaging 5.8 years) meant dilapidations disputes arose more frequently, while buyers began factoring potential recoveries into bids to gain competitive advantage. Fast-forward to today: lease terms remain compressed, but the scale of expiring liabilities is unprecedented. With 16 million square feet of leases expiring annually in 2025–26 – 43% concentrated in the City – proactive dilapidations planning is critical to asset performance.

The parallels are striking:

• Cost-conscious asset management: Just as post-2008 austerity sharpened focus on cost recovery, today’s economic headwinds (high borrowing costs, scarce development) demand rigorous capital planning. Dilapidations claims are no longer optional – they’re essential to offset refurbishment costs, MEES compliance
  and may be technically required to be enforced under banking and valuations covenants.
• Acquisition strategy: In 2014, savvy buyers used dilapidations data to underwrite bids. In 2025, with London office vacancies at 10.3% and construction starts at a 14-year low, underwriting must model dilapidations recovery to avoid overpaying for non-compliant assets.

New challenges, new rules: MEES and the ESG imperative

The 2025 surge differs in one crucial respect: regulation. The 2014 market grappled with shorter leases; today’s must navigate the MEES. By 2027, all leased offices must achieve an EPC C rating, escalating to B by 2030. For landlords, this transforms dilapidations from a cost-recovery exercise into a compliance mandate.

Consider:

• 50% of 2025–26 expiries are for sub-25,000-square-foot units,where vacancies sit at just 6.4%. Tenants in this segmentincreasingly prioritise modern, efficient spaces – landlords withnon-compliant assets risk prolonged voids.
  Large occupiers (e.g. Clifford Chance’s 2022 pre let) are securing ESG-aligned spaces years early. Dilapidations negotiations must now align with retrofit timelines to meet tenant expectations and regulatory deadlines.

Timing is everything – just ask 2014

A decade ago, I stressed that early dilapidations advice avoids budget shocks. Today, timing is even more pivotal:

• Large tenants: With lead times of up to 48 months for relocations, landlords must engage early to align dilapidations settlements with refurbishment plans. Delays risk losing tenants to competitors with MEES-ready stock.
  Smaller tenants: Those in sub-25,000-square-foot units often act closer to expiry. Landlords must accelerate assessments to minimise voids and upgrades – vacant periods now come with a regulatory clock ticking toward 2027.

The Hollis approach: bridging 2014 wisdom with 2025 realities

In 2014, Malcolm Hollis (as we were known before rebranding to Hollis) reported record dilapidations instructions as the market woke up to strategic asset management. Today, as part of Hollis, our expertise has deepened alongside market complexity.

We help clients:

Forecast liabilities pre-acquisition: Embedding dilapidations recovery into underwriting, as buyers did in 2014 – but with sharper precision for MEES costs.

Align negotiations with ESG timelines: Ensuring settlements take account of the likely extent of retrofits and/or supersession, not just repairs.

Educate stakeholders: From lease inception, we equip landlords and tenants with clarity on obligations, avoiding the budget shocks of the past.

Conclusion: History repeats – but with higher stakes

The 2014 mantra – “dilapidations is a different ball game now” – holds true. Yet 2025’s game has new rules: MEES, tighter vacancies, and a race for quality. With expiries peaking, the time to act is now.