Tenant Improvement Costs for Office Space

[Larry Flanagan]

I am looking at a small 25 yr old office building for investment purposes.  I am trying to get some realistic figures for tenant improvement allowance and frequency.  Has anyone here analyzed this?  I have talked to a few local property managers and was floored by how they seem to brush off the cost/impact of this expense.

[Daniel Chang]

A small office is very similar to residential.  In that, while the tenant may have a SF requirement or room requirement, the exact layout does not matter that much.  Hence, a small office user is generally going to look at the layout and make a determination if it will work, rather than try and negotiate moving walls.  Therefore, your costs in between tenants are your general upkeep costs of the space, like cleaning, painting, or replacing the carpet.

If you get into bigger SF, then TI's start to matter more.  If you have a 2000 SF office, you  likely are not looking to go into the expense of finding 2x 1000 SF users.  However, if you have a 10,000 SF office, then the chances increase, since you may not be able to find one 10,000 SF user.  

Lastly, TI's are always a point of negotiation.  It is unlikely you will ever be able to settle on $xx/SF of TI and run it into your calculations.  If the going market rent is $12/SF, you may agree to lease at $15/SF in return for $35/SF of TI reimbursement.