Businesses with 500 or more employees make up only 0.3% of Canada’s employer businesses, about 3,400 firms, yet they employ more than a third of private-sector workers (ISED, Key Small Business Statistics 2025).
As a business grows, so does the cost of acquiring and maintaining its real estate, as real estate teams cycle through lease renewals, fit-outs and capital projects to optimize the portfolio and control cost. But by how much?
Thirteen large Canadian-based employers invested about $2.4 billion in leasehold improvements in their most recent fiscal year. The sample, chosen for illustration, includes six financial institutions, three grocery retailers, one convenience and fuel retailer, two telecoms and one airline. That spending works out to 0.1% to 0.7% of revenue, or $840 to $4,000 per employee, every year. Together they carry $31 billion of leasehold improvements on their balance sheets at original cost.
01What leasehold improvements are
Leasehold improvements, also called tenant improvements, are the work done to adapt a leased space to the tenant’s needs. A landlord often delivers space as shell and core: structure, envelope and base-building services. Sometimes it adds basic finishes such as ceilings, lighting and HVAC distribution, called “Category A” in UK and European practice. The tenant then fits the space out for its own strategy: layout, meeting rooms, finishes, technology and branding (“Category B”). Canadian leases usually describe the split as base building versus tenant improvements.
Exhibit 1
From shell and core to fit-out
Shell and core
Base building
Structure, envelope and base-building services
Landlord
Category A
Basic finishes
Ceilings, lighting and HVAC distribution
Sometimes landlord
Category B
Tenant improvements
Layout, meeting rooms, finishes, technology and branding
Tenant
Leasehold improvements are repairs, alterations and improvements permanently affixed to leased property, which revert to the landlord at the end of the lease (Becker; CPA Canada, via OQLF). Depending on the lease, the improvements either stay with the landlord at the end of the term, or the tenant must remove them and restore the space to its original state. Many corporate real estate leaders overlook that restoration cost (an asset retirement obligation), and it comes back later as a surprise.
Key characteristics of leasehold improvements
- Two costs, not one. The budget covers the cost to improve the space and, often, the cost to restore it at lease end. The second is easy to forget because it falls due years later, so it belongs in the estimate from the start.
- Paid by the tenant, often with help from the landlord. The tenant procures and pays for the work. Lease negotiations usually include a tenant improvement allowance, a landlord contribution that is generally recovered through the rent, so it shifts who pays up front rather than lowering the total cost.
- Base building stays with the landlord. Structure, roof and central building systems are normally the landlord’s cost. The lease defines exactly where the line falls, and that line can move a significant share of the budget from one side to the other.
- A capital asset tied to the lease. Leasehold improvements are capitalized and depreciated over the shorter of the lease term and their useful life, which ranges from 7 to 25 years among the companies sampled below.
- Not every renovation cost qualifies. Repairs, maintenance and moving costs, for example, are operating expenses charged in the year. Showing them separately in the cost estimate gives finance a clear view of what will be capitalized (capex) and what will be expensed (opex).
02The data: thirteen large Canadian-based employers
The figures come from each company’s 2025 annual report: revenue, number of employees, and the property and equipment note, which details leasehold improvements. The sample covers thirteen large Canadian-based public companies and cooperatives, grouped by sector to show trends rather than individual company choices. “Annual investment” is what entered the leasehold category in the year: direct additions plus transfers from work in progress. Business acquisitions are excluded. The appendix explains how to read a property and equipment note.
Exhibit 2
Leasehold improvements by sector, 2025
| Sector | Financial institutions | Grocery retail | Convenience and fuel retail² | Telecom and transport¹ | All thirteen |
|---|---|---|---|---|---|
| Profile | |||||
| Companies | 6 | 3 | 1 | 3 | 13 |
| Revenue $B | 247.9 | 117.2 | 102.0 | 64.6 | 531.6 |
| Employees | 448,500 | 448,000 | 146,000 | 170,300 | 1,212,800 |
| Leasehold improvements | |||||
| At cost $B | 14.3 | 8.0 | 2.9 | 6.2 | 31.3 |
| 2025 investment $M | 1,112 | 627 | 474 | 213 | 2,426 |
| Ratios | |||||
| Investment ÷ revenue | 0.31–0.69%avg 0.45% | 0.43–0.61%avg 0.54% | 0.46% | 0.10–0.60%avg 0.33% | 0.10–0.69%avg 0.46% |
| Already depreciated | 46–66% | 50–67% | 43% | 54–64% | 43–67%avg 58% |
| Book life left years | 4.5–8.9 | 6.2–7.0 | 7.6 | 8.0–9.1 | 4.5–9.1 |
Ranges show the lowest and highest company in each group; averages are weighted by revenue. Book life left is the ratio of net book value to annual depreciation. ¹ Two of the three report buildings and leasehold improvements as one line, which overstates pure fit-out. ² A single company, reporting in US dollars and operating mostly outside Canada; shown separately because its revenue and headcount profile differs from grocers.
How to read these figures
- Fiscal years differ: year ends fall in April, May, September, October, December or early January. One company reports in US dollars and operates mostly outside Canada; its dollar amounts are converted at about 1.40 Canadian dollars per US dollar, which does not affect the percentage ratios.
- Investment = additions plus transfers from work in progress into the leasehold category. Several companies route most fit-out spending through work in progress first; reading only the “additions” line would understate it by up to five times.
- Owned property and equipment excludes leased right-of-use assets, so the share comparison is like for like.
- Revenue is total reported revenue; for one financial institution, adjusted revenue excludes a large one-time gain. Figures are rounded and in Canadian dollars.
- The 40,000-employee and 300-person examples use the sample, public benchmarks and the assumptions stated. They are not project results.
03What the numbers say
Fit-out spending is a recurring cost of having people, not a one-off. Every company in the sample invested every year, and the spread per employee is narrower than the spread in revenue.
Exhibit 3
Financial institutions spend the most per employee on fit-outs
2025 leasehold investment per employee
Sector average, weightedLowest to highest companyAll thirteen, weighted
Source: 2025 annual reports, PP&E notes · leasehold additions + transfers in, ÷ reported employees
Financial institutions lead probably because their physical footprint is offices and retail branches. Grocers spread their investment over large store workforces and spend less per head. The convenience and fuel retailer spends more per employee, but as a share of revenue it is in line with the grocers: fuel sales bring high revenue with few staff, and many of its sites are run by dealers whose staff it does not count. Telecoms and airlines spend least per head because their capital goes into networks and aircraft rather than floor space. The spread inside each sector is wide: the most active financial institution spends more than four times as much per employee as the least active.
Exhibit 4
Measured against revenue, grocers lead and the sectors sit closer together
2025 leasehold investment ÷ revenue
Sector average, weightedLowest to highest companyAll thirteen, weighted
Source: 2025 annual reports, income statements and PP&E notes · leasehold additions + transfers in, ÷ revenue
Measured against revenue, the order changes and the sectors sit much closer together. Grocers, third per employee, lead on this measure, while the spread between companies is widest in telecom and transport. Across all thirteen, fit-outs take about $4.60 of every $1,000 of revenue.
Exhibit 5
At financial institutions, fit-outs are over a third of the property they own
Leasehold improvements, % of owned property and equipment at cost (leased assets excluded)
Sector totalLowest to highest company
Source: 2025 annual reports, PP&E notes · gross cost at fiscal year end
For a financial institution, investment in fitting out leased premises is usually the largest category of property it owns. A company occupies space in one of two ways: it owns the building or it leases it, and it invests in fitting out the space either way. Fit-out work in an owned building is generally recorded with the building; fit-out of leased space is recorded as leasehold improvements. At four of the six, leasehold improvements at cost exceed every other class of owned property, and at three they are larger than buildings and computer equipment combined. Across all six, they make up 36% of owned property and equipment at cost. For telecoms and airlines they barely register next to networks and aircraft.
The installed base is always being replaced. Across the thirteen companies, 58% of the original cost is already depreciated, with roughly 4.5 to 9 years of book life left. In 2025, two of the financial institutions removed a combined $635M of old or fully depreciated leasehold assets while still investing. A fit-out is never finished; it runs on a cycle.
Even at this scale, the annual number moves. From 2024 to 2025, one financial institution’s investment fell by a third and one telecom’s fell by almost half. A national organization can absorb that swing. A firm with one office cannot: its spending is close to zero for nine years and concentrated in the tenth.
04What this means for your organization
A 40,000-employee organization
Take a national employer with a large frontline workforce, closer in profile to the grocers or the telecom and transport companies than to the banks. Those sectors invested on average about $1,300 per employee per year. Applied to 40,000 people: $1,300 × 40,000 ≈ $52M a year in fit-out investment. At this scale the spending is a continuous program spread over hundreds of sites, so the question is less any single project than whether the portfolio’s yearly budget is set, tracked and defended.
A 300-person firm
A law, accounting or professional services firm of 200 to 400 people faces the same economics, concentrated into one decision. The example below is illustrative. It assumes 300 people at 175 usable square feet each, or 52,500 sq. ft., and a 10-year lease.
Exhibit 6
Illustrative fit-out, 300 people · 52,500 sq. ft. · 10-year lease
| Cost basis2025–2026 benchmarks | Rate$/sq. ft. | Fit-out cost | Per year10-year lease | Per employeeper year |
|---|---|---|---|---|
| Construction only, MontrealCushman & Wakefield | 190 | $10.0M | $1.0M | $3,300 |
| Construction only, TorontoCushman & Wakefield | 204 | $10.7M | $1.1M | $3,600 |
| Medium-quality office, Canadian averageJLL | 278 | $14.6M | $1.5M | $4,900 |
Spread over a 10-year lease, that is $3,300 to $4,900 per employee per year: close to what the most active financial institutions spend, and about three times the $1,300 of the 40,000-employee example. Two reasons explain the gap. First, everyone at the firm works in an office, while a large employer’s average also covers store, warehouse and field staff. Second, the $1,300 is averaged over the entire company, while only part of its portfolio is fitted out in any given year. The other difference is timing. A national organization spreads its spending over hundreds of sites and years; the firm commits $10M to $15M at once, usually within months of signing the lease.
These benchmarks are indicative. The actual cost of a given project can be higher.
AAppendix: reading a property and equipment note
Every company figure in this article comes from one note in the audited annual report, titled “Property and equipment”, “Premises and equipment” or “Fixed assets”. The tables look alike from company to company because accounting standards require the same disclosure for each class of asset: gross cost, accumulated depreciation, and a reconciliation from the opening to the closing balance showing additions, disposals, depreciation, impairment, exchange differences and other changes.
The columns are classes of assets: land and buildings the company owns (land is not depreciated), computer equipment, furniture and other movable equipment, leasehold improvements (the fit-out the tenant pays for inside leased space), and work in progress (projects not yet finished, moved to their own column once in use). Many notes also show right-of-use assets: the tenant’s right to occupy leased space for the lease term, valued at the present value of the committed rent. That is the lease itself, not the fit-out, and this article leaves it out.
The rows show how each balance moves during the year. The ones this article uses are additions (new spending), transfers from work in progress (finished projects), disposals and fully depreciated assets (old items removed), accumulated depreciation (the share of cost already charged to earnings) and the net carrying amount (cost minus accumulated depreciation: the amount on the balance sheet).
Exhibit 7
Reading one column, with illustrative numbers ($M)
| Leasehold improvements | Cost | Accumulated depreciation |
|---|---|---|
| Opening balance | 1,000 | 550 |
| Additions | 80 | |
| Depreciation for the year | 70 | |
| Disposals | (5) | (3) |
| Fully depreciated assets | (10) | (10) |
| Foreign exchange and other | 2 | |
| Closing balance | 1,067 | 607 |
Three figures come out of this column:
Investment for the year
Additions plus any transfers from work in progress = 80. This is the “2025 investment” used for each company in this article. It is not the same as the change in cost (1,067 − 1,000 = 67), which is reduced by disposals, assets written off and exchange movements.
Net carrying amount
Cost minus accumulated depreciation = 1,067 − 607 = 460, the amount on the balance sheet.
Share already depreciated
607 ÷ 1,067 = 57%.
Every column should tie this way: opening balance plus the movements equals the closing balance, and cost minus accumulated depreciation equals the net amount.
Sources
- Business counts: Innovation, Science and Economic Development Canada, Key Small Business Statistics 2025 (employer businesses and private-sector employment by size, 2024)
- Definitions: Becker, Leasehold improvement; Canadian Institute of Chartered Accountants (now CPA Canada), Dictionnaire de la comptabilité et de la gestion financière, 2006, via OQLF, Grand dictionnaire terminologique
- Accounting standards: IAS 16 Property, Plant and Equipment; IFRS 16 Leases
- Company data: property and equipment notes of the 2025 annual reports of thirteen large Canadian-based public companies and cooperatives, grouped by sector
- Fit-out benchmarks: Cushman & Wakefield, 2026 Office Fit Out Cost Guide (Canada), JLL, U.S. and Canada Office Fit-Out Cost Guide 2025
Decide before you commit
Xenofan prepares independent capital estimates for office and branch fit-outs before the lease, the budget or the contractor is locked in. A lease to renew within three years? Write to us: info@xenofan.ca
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