A common question I get as a commercial broker is, "how does the tenant improvement process work?" Since most properties will not have a turnkey space for the tenant, alterations are frequently required.
A tenant improvement is a modification made to a space that makes it more operable for the tenant. For example: if a space has three offices, but the tenant needs four, building the fourth office is considered a tenant improvement.
Landlords typically establish a tenant improvement allowance range before listing a commercial space on the market. The actual allowance offered will depend on the tenant's credit strength and the terms of the deal.
1. Landlord Conversion: The landlord will cover all expenses and use their contractor to deliver a turnkey space for the tenant. This is the most common when minimal modifications are required. Landlords may also be willing to offer an entire space conversation for solid tenants.
2. Tenant Improvement Allowance: In this scenario, the landlord would provide the tenant a specified dollar amount of modifications. The tenant then would hire a contractor to do the required work but will always need the landlord's approval before commencing work.
3. At Tenant's Cost: The tenant may be required to cover the entire cost of the needed tenant improvements. This situation may occur when there is weak tenant credit, a low rental rate, a short-term lease, or a landlord's lack of funds. Regardless of the situation, the tenant still needs landlord approval before commencing work. PRO TIP: If the landlord is unable to offer any money for tenant improvements, ask to offset the cost with free rent.
If you need help finding the ideal space and navigating the tenant improvement process, contact Evan Meyer. He can work on your behalf to get the best deal possible.
Multiple methods are often utilized to determine the value of commercial property.
The three most common methods are the income approach, the market approach, and the cost approach.
The income approach is the most commonly used method to value commercial property. It uses the income generated by the property to estimate value. Two factors are used:
The value is calculated by dividing the net operating income (NOI) by the capitalization rate:
Value = NOI / Cap Rate
Tip: The higher the cap rate, the lower the property price.
The market approach analyzes actual comparable property sales (comps) and is the most commonly used method to value residential property. It is also used for commercial property. This approach does not account for deferred maintenance, vacancies, or lost collections.
Tip: Make sure comps are comparable and not selected to distort value.
The cost approach estimates value based upon how much it would cost to build. This method includes the value of land, construction materials, permits, and labor.
Tip: Keep in mind that construction projects often run over budget.
Are you curious about how much your commercial property is worth? Evan Meyer is an experienced and qualified broker who is willing to provide a Broker Price Opinion (BPO) at no cost to you.
Determining the amount of office space needed is not an exact science. However, there is a formula that can be useful in planning for space required now and in the future. It is as simple as determining what type of office user you are.
Large bullpens with small desks and open seating
80 Square Feet to 150 Square Feet per employee
Traditional office layout with a mix of cubes or open desks and private offices
150 Square Feet to 250 Square Feet per employee
Consists mostly of large private offices
250 Square Feet to 500 Square Feet per employee
The square footage per employee includes common area space consisting of conference rooms and break areas. Typically, the denser the office space, the higher percentage of the square footage is designated to common areas.
If you need help finding the ideal space that meets your needs, Evan Meyer is an expert when it comes to office space. He can help identify a functional space that will work now and in the future.
