Era of sustainability provides opportunity for office upgrades

Office life has changed dramatically over the last few years. More businesses now offer employees adaptable working arrangements, including flexible hours, the ability to work from home and in-office hybrids.

At one point during the pandemic, more than forty per cent of Australians were working from home, resulting in increased vacancy rates for offices. But while there was a sharp drop initially, demand for office space has recovered.

According to Ken Morrison, Chief Executive of the Property Council of Australia, Chief Executive of the Property Council of Australia 2014 – Jan 2023, “the office market continues to defy previous dire predictions, with demand still in positive territory after nearly three years of the pandemic. New office space is driving this outcome, not businesses wanting less office space.”

With this growth in demand, there has been growth in office renovation.

The transformation of office space isn’t exclusive to modern fit outs and new exteriors but incorporates energy efficiency, a focus on technology, and sustainable and collaborative spaces. Office occupiers are focused on how to best utilise office space to support and boost collaboration and company culture rather than using individual desks and solely focusing on work. Sustainability often plays an important factor in occupants’ choices. Many companies have carbon emission reduction targets and work towards high energy ratings; unsustainable and often outdated buildings can be inadequate.

Landlords who take advantage of these supply and demand issues by upgrading their fit-outs and completing renovations will attain long-term quality tenants and rental income.

Upgrading fit-outs can be a costly process. Fortunately, there are various government incentives and policies available until the end of this financial year that accelerate depreciation deductions including temporary full expensing and instant asset write-off.

• Temporary full expensing allows all businesses with an aggregated turnover of less than $5 billion to claim an immediate deduction for qualifying plant and equipment.
• The instant asset write-off incentive allows eligible businesses with an aggregated turnover of less than $500 million to claim an immediate deduction for qualifying assets first used or installed ready for use from 7:30 pm on 6 October 2022 to 30 June 2023.

If temporary full expensing does not apply or you are not eligible for it, you may still claim the depreciation deduction under instant asset write-off if the asset was purchased by 31 December 2020, and first used or installed ready for use before 30 June 2021.

These incentives allow not just commercial landlords but business owners to immediately deduct the full depreciable value of eligible plant and equipment assets in the year of purchase or use.

Landlords or business owners who complete upgrades may also be eligible to scrap any removed assets that hold leftover depreciable value in the same financial year, helping to create stronger cash flow.

Case study: A Sydney skyscraper

Two floors of a Sydney building owned and occupied by a law firm earning an aggregated turnover of approximately $63 million underwent upgrades to their fit-out, which was previously upgraded in 2018.

The following table demonstrates the depreciable value of the scrapped assets and the first-year depreciation deduction post upgrades.

Because the owner applied temporary full expensing, they were eligible to claim the full cost of qualifying assets as an immediate deduction in the same financial year, along with the total scrapped value.

To learn more about how depreciation and government incentives can help landlords prepare for supply and demand changes, contact BMT on 1300 728 726 or Request a quote.