When looking for commercial real estate to lease, one of the most common questions business owners ask is “how much is this going to cost?”
A seemingly simple question, but one that comes with a lot of caveats. There are the monthly rental and associated fees, commercial lease deposit and FF&E costs. But there are also the costs of necessary improvements.
Before signing that lease, here’s how to estimate your improvement costs and what the landlord will potentially cover.
How to Estimate Improvement Costs: Factors to Consider
In order to estimate your tenant improvement costs, you need to evaluate the building and space for common areas that will require improvement. On average, most commercial building improvement costs range between $15 and $40 per square foot, but the cost may be higher depending on the building.
Please note: it’s very difficult to pinpoint an exact number of estimated costs without hiring a contractor to examine the property. Opting to do so would be your ideal choice for obtaining the most accurate estimate of required repairs.
That being said, most the common tenant improvements include:
- Plumbing and electrical work
- HVAC upgrades
- Flooring and ceiling improvements
- Lighting replacements or updates
- New walls or doors
Consider which items are likely going to be necessary in the space to have an idea of what expenses you’ll be looking at. You also want to consider the following factors that may increase your costs:
- Age of the building
- The location of the building
- The type of space (e.g., is this a single-floor office space, or a large warehouse?)
When in doubt, estimate on the high end for everything.
Tenant Allowances (TIA): What to Know
Before we explore estimating an improvement cost, it’s important to dive into a Tenant Allowance (also called TIA, TI, or TA). The allowance is what the property management company will actually pay for the improvements.
This is the negotiated sum of money that the landlord will provide to you, as the tenant, to make your improvements.
How to Estimate Tenant Improvements for TIA
There are a few different ways that TIA is potentially calculated, and several factors that you as a tenant should take into consideration that will impact your overall improvement budget.
Option 1: Fixed Amount
Under this TIA, your budget for improvements is a set amount. It’s typically 25 – 150% of your total first year of payments. It’s important to know from the landlord if they will only consider a fixed amount option and at what percentage, as this may impact your decision to sign the lease.
Option 2: Per-Square-Foot Basis
This is one of the most common ways that TIA is granted. Under this method, there is a set budget for improvements per square foot – which is set by the landlord and typically ranges from $10 – $45. You then multiply this allowance by the number of square feet in your rented space.
Option 3: Percentage of Total Costs
Finally, in some cases the TIA is granted based on the total estimate of improvements. This would require you to have an estimate in place from an inspector or contractor. Under this model, the landlord would agree to pay a percentage of the total estimated cost.
Titus Commercial Remodeling Services
At Titus Contracting, our goal is to create comfortable workplaces that help you attract new business and new talent. With decades of experience, let Titus Contracting help with your remodeling, build out needs. We offer additions, tenant construction, retail buildouts, construction management, custom design-and-build remodeling services.
Titus Contracting is a full-service remodeling company offering commercial and residential construction. We have an office in Burnsville, Minnesota and work throughout the Twin Cities.