Tenant Improvement Allowance – part 2

Part Two: Tenant Improvement and the different property types

Missed part one about Tenant Improvements? Read it here!

In part-one of this series we focused on the Tenant Improvement Allowance. In part-two we will dig into the three primary types of properties:



When evaluating property types, it’s also important to understand how tenant improvement costs per square foot and the average tenant improvement allowance vary depending on the space. A cold dark shell often comes with a higher build out allowance on a commercial lease, but it also requires more extensive work, including tenant improvement HVAC, electrical, and plumbing. In Central Texas, commercial tenant finish-out costs can differ significantly between white box spaces, second-generation locations, and specialty uses like professional tenant improvement storefront installations or fitness concepts, where a fitness studio tenant improvement allowance per square foot may need to be higher to support open layouts and mechanical demands. 

Understanding how the tenant installation allowance is structured helps business owners plan accurately and negotiate smarter lease terms before committing to a space.

1. Cold dark shell - this is the most basic option where the builder/developer has only provided the exterior shell of the building. The inside of the exterior walls are exposed and there is no HVAC, electric, or water.
2. White box - the owner has paid to bring in HVAC, electric, and water for you. They have likely provided a restroom and installed drywall on the four walls inside your space.
3. Second generation or pre-finished - someone else has already built-out the space. It is now available for a new tenant and will frequently need remodeling and updating.

Each property type comes with its own unique advantages and disadvantages. Understanding these differences in advance will help you and your Realtor focus your time on the type of properties that will work best for you. Time is money…

To help you in your quest, here are a few of the pros and cons for each.

Pros:

1. Cold dark shell -
2. Provides you with a clean pallet and offers the greatest finish out flexibility. You can build rooms wherever you need them.
3. Landlords are usually, but not always, willing to give healthier Tenant Improvement Allowances to help you with finish-out costs.
4. White box -
5. Provides a wide-open space with great finish-out flexibility. Although the restroom is in place, you can still build-out the rest of the space to meet your needs.
6. These properties are great for retail stores needing plenty of open floor space.
7. The most expensive items are typically in place already: HVAC, electrical, plumbing. This can lower your costs and it definitely shortens the construction process.
8. Second generation/pre-finished -
9. Because the space is already finished-out, it may be ready to move into right away.
10. Little to no out-of-pocket expense required.

Cons:

1. Cold dark Shell -
2. This option is the most complicated, takes the longest to complete, and can seem overwhelming if you’ve never been through the process before.
3. While the Landlord typically provides a Tenant Improvement Allowance, you will still have to come out of pocket for a large portion of the improvements
4. White box -
5. Most office environment will require additional finish-out. These costs will likely need to come out of your pocket.
6. The finish-out process can extend your move-in date several months.
7. The Landlord has invested in the MEP’s (Mechanical/HVAC, Electrical, & Plumbing) and may not be willing to contribute any further. Be prepared to come out of pocket for finish-out costs.
8. Second generation/pre-finished-
9. Chances are good that a remodel will be necessary. You may need to move walls and doors or upgrade lighting, flooring and fixtures.
10. We never know what is behind the walls until we open them up. Thus, remodels may have unpleasant and costly surprises to discover.
11. The Landlord may not want to pay for additional changes to the space. Therefore, you may have to pay for any changes and/or repairs yourself.

Whatever your unique situation, we can help you determine which type of space will serve you best.

We can help provide an early-stage budget estimate to illustrate what costs might look like. Your Realtor can use these numbers to negotiate the most favorable lease terms for you.

For best results, CONTACT US early in the process.

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NorthStar Commercial Interiors, LLC

972-832-2862

Watch this video to find out more about how small business owners succeed when building new facilities. Office, Retail, Medical Construction.