In today’s office market, landlords are providing generous improvement allowances to fund the renovation of office space for new and renewing tenants. The amount depends on many factors including the credit worthiness of the tenant, the terms in the lease and the total square footage of the space. Generally, a landlord offers more for larger tenants with a longer lease term (seven years or more).
Retrofitting costs vary greatly, from a low of $7.00 per square foot to repaint and provide new carpet; to $25.00 per square foot for paint, carpet and a moderate amount of construction; to $80.00 per square for complete transformation of raw space. Landlords usually require a minimum of a five-year lease term when providing $20.00 per square foot or more.
Occasionally, the tenant improvement allowance can be applied towards project management, architectural fees and even moving expenses. In addition, tenants who are renewing should also ask for an improvement allowance. All too often, we have heard from area companies who just renewed and that they had wanted to redesign their office space but failed to bring it up during negotiations.
When the improvement allowance provided by the landlord does not fund all of the required construction costs, tenants can also negotiate free rent and/or incur a slight increase in rent to help offset the remaining costs.
Conversely, when subleasing, sub-landlords generally prefer to offer free rent in lieu of the allowance. As such, companies searching for a sublease should ensure the space accommodates most or all of their specific layout needs to take advantage of below market rents.