Tenant Improvements: A Practical Guide for Estimating Project Cost

Commercial_TI_10When executing a lease, most tenants will need to renovate an existing space. The scope of this work can range from new carpet and paint to the complete build-out of empty shell space. It is important to have a very clear idea of what it costs to design, permit and construct the new improvements for the new space. What may seem initially to be a simple remodel can grow in complexity and cost as unforeseen complications emerge. Underestimating your project’s cost in the initial stages forces you to come up with additional cash for the short fall or compromise on key project elements. Most of these headaches can be avoided with better and more complete information presented early in the project.

Here are some quoted rates for Tenant Improvement for a typical space including costs to design, permit and construct the improvements (these are only quoted rates: your own project costs may vary from these figures):
• Carpet and paint for an existing unoccupied space: $5 – $7/sf
• Carpet and paint for an existing occupied space: $8 – $10/sf
• Minor remodel of an existing unoccupied space (50% or less): $15 – $25/sf
• Major remodel of an existing space: $35 – $50/sf
• New construction on a warm shell space (restrooms/lobbies already built): $50 – $65/sf
• New construction on a cold shell space (no restrooms or lobby yet): $60 – $75/sf

These figures are for typical “Building Standard” improvements. Special requirements and high-end finishes will result in higher costs.

There is another category of expenses that tenants need to anticipate, referred to as Furniture, Fixtures and Equipment, or FF&E. Most landlords do not allow tenants to use the Tenant Improvement Allowance to pay for FF&E, so Tenants need to understand, budget and plan for these expenses.

Here are some basic FF&E cost guidelines for typical office tenants (again, your own project costs may vary from these figures):
• Office Furnishings: $0 – $35
• Systems Furniture (Cubes): $1,500 – $5,000/cube
• Cabling: $1 – 2.50/sf

Before signing any lease, make sure you have a clear understanding of what it will cost to design, permit and construct your new space, and take a close look at the existing mechanical, electrical and plumbing equipment for out of date equipment or deferred maintenance issues. You should also consider having the property inspected by an architect or other qualified professional to identify potential ADA and building code deficiencies.

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