Whether you’re running an office, warehouse, production line, or retail store, your business will require specific features from the building to function. Almost every business needs to renovate or modify the space it rents in order to accomplish its business goals. When these renovation construction projects are negotiated as part of the lease, they’re called tenant improvements.
Tenant improvement construction is a standard part of commercial real estate. Let’s review how tenant improvements work and the role tenant improvement contractors play in the process.
What are tenant improvements?
Tenant improvements are any customizations or alterations a building owner makes to a commercial space as part of the lease agreement with a business tenant.
Many commercial spaces are empty shells or were formerly rented by an entirely different kind of business. When a new business is ready to lease space in the building, it may require physical alterations to the space for the company to operate. Tenant improvements can include any material modifications to the building structure and the construction costs and licensing fees that come with them.
The building owner often pays for the cost of tenant improvement construction as part of the lease agreement. That’s why tenant improvements are sometimes called leasehold improvements.
What types of upgrades or renovations are often made?
As tenant improvement contractors, we see a wide variety of tenant build-outs.
Some commonly successful tenant improvement projects include the following:
- Adding offices
- Building more bathrooms
- Crafting a kitchen
- Constructing a conference room
Some Utah commercial tenant improvements can also revolve around the building’s heating and air conditioning system’s functionality and ability to handle Utah’s substantial temperature swings.
Not every commercial space improvement requires a construction process. One tenant build-out in Utah may require architects, engineers, and construction services. Other office renovation could be as basic as a simple paint job.
The furniture and decorations in a commercial space are not included as part of the tenant renovations.
Turnkey Renovation Projects
The business tenant is responsible for managing most tenant improvement construction projects. However, in some cases, the landlord and the tenant may agree to a turnkey renovation. With turnkey renovations, the tenant relays their space improvement needs to the landlord. The landlord then arranges, manages, and pays for all the upgrades, usually before the tenant moves in.
How to Negotiate Tenant Improvements with Your Landlord
The building owner covers tenant improvement costs through tenant improvement allowances (TIA) in the lease or addendum. The tenant improvement allowance gives commercial building owners and their business tenants lots of leeway for negotiating the specifics of payment and project management.
Negotiate the terms of your tenant build-out with your landlord before signing the lease. Some landlords will offer TIA because they know that for a business to pay its rent, it must operate sufficiently to make money. Others may not offer TIA but will agree if you bring it up. Some may not go for it at all, but we recommend a different building if that’s the case.
You will need to negotiate the amount of the TIA with your landlord. It’s often based on a per-square-foot basis. Negotiating for TIA may result in changes to other parts of the lease. Your business financial records and credit score may also affect how much TIA the building owner will agree to.
In most cases, the tenant pays for the initial renovation costs. Then the landlord reimburses the tenant through an agreed-upon payment plan. Sometimes building owners pay a lump sum once the construction project is complete. Sometimes the reimbursement comes in the form of reduced rent.
Occasionally, as in the turnkey renovations mentioned above, the landlord will pay for tenant improvement projects directly. But don’t count on this as a business tenant. Plan to pay for the tenant improvements upfront as part of your budget. Then negotiate the TIA terms with your landlord.
How the Right Upgrades Can Make a Rented Space Feel Like Home for Your Business
Before negotiating your TIA with your landlord, identify all the possible building improvements your business might need. Consider the needs of your clients, customers, and employees in the daily operation of the company. How many offices will you need? What about bathrooms? Do you want an open, collaborative environment or closed rooms for private conversations? Where do you expect people to walk? Which direction? Do you need to add or move a point-of-sale?
Next, look at what the space already has. A brand-new building may be an empty shell that needs all kinds of additions. However, if you’re moving into a space previously rented by another business, you may be able to salvage or retrofit what they left behind to work with your business. This can often save you money and occasionally can lead to insights that lead to innovations that benefit your business as a whole.
Use the existing structure you can, but create a space where people feel comfortable. This includes the temperature-regulated heating and air conditioning system. It also includes the flow of the area in the building, the color scheme used, and each room evoking the right environment for its function. While an open ceiling may work for cubicles, you may want to put a drop ceiling on that conference room to keep it feeling a bit more private.
Comfortable clients and customers will spend more time with you and your products or services. This will increase the chances of additional purchases. Comfortable employees generally produce higher-quality work more efficiently. This keeps your overall costs lower.
Customizing a commercial space to meet the needs of your business makes financial sense, especially when your landlord covers the expense through TIA.
For Utah’s commercial tenant improvement experts, turn to Cook Builders.
If you’re a business tenant in Utah, look to Cook Builders for your tenant improvements. Our expert contractors can build out your leasehold to create the perfect place for your business. We have the experience and expertise to complete your project on time and on budget. That means you spend less money and start making more money sooner.
Contact Cook Builders for all your commercial tenant improvements. Request a bid today!