Every fit-out has a number that a client remembers. It’s usually the number in bold at the bottom of the invoice. But that’s almost never the number that matters. The real costs are hidden in the years that follow — how slowly that spend can be clawed back via tax and depreciation, what can be claimed, and the bill to return a leased space back to its original condition when the lease comes to an end. For a growing SME, the gap between that first number and the whole-of-lease figure can be significant. In this guide we look at how to financially leverage the most from your fitout
Author: Alasdair Hood, Principal - Head of Design, Context Architects
Outline
- Why capital expenditure is only part of the expense
- Lever One: depreciation after the 2024 tax change
- Lever Two: make-good and end-of-lease reinstatement exposure
- Lever Three: programme risk and overlapping rent exposure
- Lever Four: retained value when the lease ends
- How to build a whole-of-lease comparison model
- Questions to ask before you proceed
- Next steps for finance leaders
Key Takeaways
- Model whole-of-lease cost, not build price alone
- Commercial buildings depreciate at 0% since April 2024
- Separately identifiable fitout and chattels remain depreciable
- IRD Investment Boost allows 20% upfront on qualifying assets
- Make-good obligations can have significant cost implications
- Consent and programme delays can cause overlapping rent exposure
- Fixed fitout usually ends up being a sunk cost at lease end
Introduction
The JLL Australia and New Zealand Fit-Out Cost Guide 2026 puts the average cost of a fitout in Auckland at NZ$3,200 per square metre, a figure the guide attributes to pressures including a net outflow of skilled labour to Australia and significant logistical costs. That puts a 400 square metre workplace comfortably past NZ$1.2 million — a significant spend in any company’s books.
But the build price is only one of four levers. The other three — how quickly the spend returns value through tax, what you are liable to retained at the end, and how much programme risk is carried — are all shaped during the design stage, and usually months before a construction contract is signed. This guide gives finance leaders an outline of the big picture.
Lever One: depreciation, and what changed in 2024
From 1 April 2024, the depreciation rate for commercial buildings was reduced to 0%. Commercial fitout, however, remains depreciable — so correctly classifying spend between the two, determines whether a meaningful proportion of the cost can be claimed as depreciation. Fitout and chattels that do not form part of the building carry their own published rates in Inland Revenue's general depreciation rates guide, IR265.
So the question is not simply "what does the fitout cost". It should be: "how much of this spend is a separately identifiable asset, and how much disappears into building fabric that now depreciates at zero".
In practical terms: a partition framed, lined, stopped and painted into the building is generally a part of the building’s fabric. A freestanding, demountable element that can be unbolted and moved may be considered a separate asset. The design detail can influence the tax outcome.
There is a second, newer lever worth modelling. Under Investment Boost, from 22 May 2025 businesses can claim 20% of the cost of new assets as an expense, then claim depreciation as usual on the remaining 80%. It applies to eligible depreciable property first used or available for use on or after that date, including capital improvements to existing assets. It does not increase the total deduction available over the life of the asset; it shifts a portion forward, reducing taxable income sooner. For an SME funding a fit-out from working capital, that distinction between cash-flow timing and total savings can be extremely useful.
Lever Two: make-good obligations, the sting in the tail
The cost of make-good (the reinstatement of the base building to its original condition) is regularly underestimated or even overlooked altogether.
As Franklin Law explains, the widely used ADLS Deed of Lease requires a tenant at termination to return the premises in the same clean order, repair and condition as at the start of the lease, subject to fair wear and tear. That includes removing chattels, additions and alterations made by the tenant unless the landlord allows them to remain, all at the tenant's cost. In practice, those obligations can include stripping out partitions, removing signage, reinstating ceilings, removing cabling, plastering and repainting walls, and potentially remediating floor finishes if not acceptable to the landlord. Added to the cost of relocating to new premises, the bill can be a considerable addition to the budget.
To offset this cost, many landlords will accept a cash settlement in lieu of physical reinstatement, particularly where they plan to refurbish or re-tenant, which can be significantly cheaper than a full strip-out.
Crucially, the extent of make-good liability is proportional to how much of the fitout is integrated into the fabric of the building. That’s a design decision with a direct financial consequence that we’ll discuss more in our next guide.
Lever Three: programme risk and overlapping rent
A prolonged or delayed programme presents financial risk. When a new lease commences but the premises is not ready, Chances are you’ll be paying double rent to keep a roof over your head.
Between consenting delays and labour-intensive onsite processes, the risk of an overrun is real. Taking the initiative with a building consent pre-application meeting and designing the fitout to reduce onsite fabrication are two simple steps to help manage programme risk.
In our next blog, we’ll share how rethinking fitout design can reduce the onsite scope using prefabricated or furniture-based elements assembled off-site, delivered and installed with maximum programme efficiency.
Lever Four: what is left at the end
A traditional fixed fitout typically has a residual value of zero — compounded, once the cost of demolition is factored in.
Consider: how much of the capital expenditure spent on your fitout can be classed as an asset you still own, and how much is a cost you’ll outlay again to remove it as part of your make-good obligations? Components that can be uninstalled, relocated and reused in a second tenancy materially change the equation. They remain on the asset register rather than becoming a demolition line item, a business asset with a life beyond one lease, rather than a sunk cost.
Building the comparison model
Compare a conventional fixed fitout against a more modular alternative:
- Capital cost. Build price plus furniture, fittings and equipment, plus professional fees.
- Tax profile. Estimated split between separately depreciable assets and non-depreciable building fabric, with any Investment Boost applied in year one.
- Exit cost. Estimated reinstatement scope under your actual lease wording.
- Programme risk. Weeks on site, consent exposure, and the cost of an overrun.
- Residual value. What remains as an owned asset at termination.
Then discount the net cash flows across the full term. A higher capital cost with a faster tax profile, a lower exit liability and a residual value may well deliver higher actual, and perceived value, through higher quality elements than a cheaper build where costs are cut because the fitout is considered a sunk cost.
Questions to ask before proceeding
- What proportion of this fitout is likely to be separately identifiable depreciable property rather than building fabric, and will you support that with a quantity surveyor's schedule?
- Which items does your lease actually require us to remove at termination, and has the landlord confirmed in writing what may remain?
- What scope in this design triggers building consent, and what would it take to reduce it?
- What is the estimated residual value of these components at lease end?
- What could an overrun cost us in overlapping rent?
Take the first and fourth of those to your accountant. Classification and depreciation outcomes depend on your specific design, method of fixing and professional advice — nothing in this article should be construed as tax advice.
Common questions about fitout cost modelling
- Can an office fitout still be depreciated in New Zealand? The rate for non-residential buildings is 0% from the 2024/25 income year, but commercial fitout remains depreciable, at the rates published in IR265.
- Does the Investment Boost apply to a fitout? It applies to eligible new depreciable property, including capital improvements to existing assets, first used or available for use on or after 22 May 2025. Eligibility for your specific asset schedule is a question for your accountant.
- How much should we provision for make-good? It depends on your lease wording and the nature of your fitout. An independent dilapidations assessment from a quantity surveyor or commercial dilapidations specialist can list what the lease arguably requires you to address and give you a cost estimate, which can become the baseline for negotiation with the landlord.
Next Steps
Before locking down a fitout budget, build a comparison. Even a rough version will provide a useful steer, because it should highlight both the exit liability and the residual value.
Ask your accountant what proportion of your last fitout ended up as separately depreciable property. The answer tells you how much value the previous design decision left on the table.
Our next guide examines what actually makes a workplace relocatable in practice. [Internal link to Blog 3]
You can also browse our workplace projects or read more of our thinking in Context Insights.
Jump to the other blogs in this series here:
Part 1: Your Office Lease Is Expiring: A 12-Month Planning Guide for New Zealand SMEs - Context NZ
Part 5: After the Move: How to Make Your New Workplace Keep Paying Off - Context NZ
About the Author:
Alasdair Hood, Principal - Head of Design, Context Architects
Alasdair Hood is a Design Principal at Context Architects, where he leads commercial workplace design across the practice's New Zealand studios. An award-winning designer, Alasdair has spent more than two decades helping organisations rethink how their physical space supports the way people actually work.
Alasdair specialises in translating a company's culture, headcount and growth plans into workplaces that are flexible, cost-efficient and built for change, drawing on Context's Adaptive Modular Design approach to reduce fitout cost, cut make-good liability and keep options open.
He writes regularly on the future of work and the evolving New Zealand workplace. Connect with Alasdair on LinkedIn, or explore Context Architects' workplace thinking through their Insights.