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Cost Tracking

CRE Experts' Tips on Controlling the Cost of Tenant Improvements

Tenant improvement projects are getting a lot of attention even in the early days of 2017. In the article Manhattan Office Owners Pay to Keep Tenants as Demand Falls, Bloomberg News reported, “Manhattan office landlords are facing falling rents and heightened competition, spurring unprecedented spending to accommodate tenants.” Owners in Midtown Manhattan are undertaking broad swaths of projects, including TI projects, not only to stay competitive but also in preparation for refinancing.

Crain’s Business describes a similar environment in Chicago and the surrounding suburbs with JLL’s Scott Ohlander stating, “We’re still seeing aggressive tenant improvement packages.” Even San Francisco, awash in new office space, saw landlord concessions, including tenant improvement allowances, increasing in 2016.

It’s time to really get a handle on your TI projects

JLL forecasted this uptick in TI projects back in the spring of 2015 in their Q2 Construction Perspective:

“As construction costs continue to grow nationwide, many landlords are looking to redevelop existing stock in major markets. The focus on tenant improvements (TIs) is also gaining momentum due to the urban renewal trend, which is driven by millennial demand for city center, unique and open spaces.”

So, what should you pay for an office tenant improvement? Some very generic benchmark numbers exist, but they don’t factor in the particularities of existing spaces or the variations in tenant preferences. To make matters more complicated, the trend for flexible, personalized and sometimes quirky spaces has shifted owners’ tenant improvement strategies from standardization to customization.

Controlling costs seems to be more difficult than ever, but it is manageable

Let’s look at one example. Performance bonds are a great way to ensure that you’re protected in the event that subcontractors don’t complete their jobs. However, these bonds can be expensive and rigid, making them not optimal for every scenario.

You could consider other options, like Subcontractor Default Insurance (SDI). This form of surety can have lower premium costs, have greater flexibility, and provide coverage on entities that aren’t protected by performance bonds. Some experts even believe that performance bonds are an overall unnecessary expense, except in situations when working with inexperienced subcontractors without an established work history.

This is just one of many ways to control expenditures on TI projects. We worked with top general contractors at Structure Tone, NDNY Architecture, Tishman Interiors and Tishman Construction to bring together more of their insights and pro tips into a guide for owners and managers. Download the guide below to save money and start building an internal pricing database.


Download the guide to lowering your tenant improvement costs

Pauline Nee

Written by Pauline Nee

Pauline is the head of content for Honest Buildings. For over twelve years in the commercial real estate industry, she has held diverse roles focused on product development, digital marketing, user research, web design and arts programming.

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