Whether an established business or a start-up, your new office build-out constructed to your exact specifications is critical.
However, among other costs to consider, how much of these build-out costs will your landlord cover?
The answer is the more they cover, the better.
First, tenants are less familiar with the construction process.
Second, it mitigates the risk of hiring contractors that deliver late at higher prices than estimates.
Additionally, FIRE companies (financial, insurance, real estate, and legal) have different office build-out needs than TAMI companies (technology, advertising, media, or information).
Set floor plans better fit a FIRE company. For example, an open floor plan is unsuitable for a lawyer trying to have a confidential discussion with a client or an accounting firm requiring 8 offices and a conference room.
On the other hand, a technology start-up may prefer a collaborative work environment with an open layout.
Here’s the good news if you’re looking for New York City office space and have concerns about build-out costs. Landlords will either modify an existing build-out or rebuild it entirely to a new tenant’s architectural specifications once lease terms are agreed to. In other words, they hire the general contractor, manage construction and pay varying build-out costs.
In addition, landlords also usually give a tenant improvement allowance and will build to a cap. For example, if the allowance is $50/SF, and the space is 2,000 SF, the landlord will build to a cap of $100,000. The tenant will then cover the balance.
As a tenant, don’t assume you have to pay for everything from sheetrock walls to plumbing. Most importantly, understand that any experienced broker knows this and can negotiate on your behalf. Your objective is simple- to have the landlord cover construction costs as part of your lease agreement.
Is a Pre Built Office Rental a Good Option?
Frequently, when a long-term tenant vacates an old, tired office, the landlord will demolish it and build it out with a generic, readily marketable layout, regardless of the building class.
For instance, say a twenty-year tenant decides to vacate a 10,000 Square Foot office. Once the tenant vacates, the landlord may split that space into four 2,500 Square Foot units. Then, the landlord will reconstruct each unit with state-of-the-art installations built to the highest standards. A new tenant wanting to lease one of these brand-new pre-built offices will have difficulty saying no.
Construction is Negotiable
Large New York City landlords are usually more open to providing a build-out for credit-worthy tenants. Generally, they have their own construction companies or have established relationships with contractors.
Assuming the tenant signs a lease term of at least five years (so the landlord has sufficient time to amortize the cost), the landlord will often modify an existing space or, if necessary, rebuild it.
For leases shorter than five years, landlords usually agree to paint the space and, in some cases, provide and install carpeting.
Tenants May Cover More Costs in Boutique Buildings
Since boutique building landlords are less equipped to provide extensive construction, they usually offer to cover no more than a paint job or a basic floor treatment. Hence, this leaves a new tenant responsible for covering further improvements.
However, if you find yourself in this scenario, you can negotiate some free rent instead of construction.
Retail and Restaurants Come “As Is”
Costs for office, loft, healthcare, or showroom build-outs in New York City are negotiable.
However, tenants typically lease retail or restaurants (or any ground floor space) in “as is” condition. That means little more than the essential infrastructure (plumbing, HVAC, electrical distribution) comes in place. Tenants will usually have to cover construction costs. The good news, though, is landlords generally offset these costs with free rent.
If worried about issuing your general contractor a hefty check, consider that you might not pay rent for several months.
For Specialized Spaces, Landlords May Prefer to Avoid Construction
Landlords sometimes want zero involvement with build-outs.
This is particularly true if the construction is specialized, like at a data center, medical facility, or salon. In such situations, the landlord may provide the tenant with a work letter, rent credit, or tenant improvement allowance to offset construction costs.
Of course, the amount of free rent and construction allowance a landlord offers is subject to negotiation. Your broker will work on your behalf to maximize these concessions.
Real Estate Professionals Know Where to Look
Thousands of commercial landlords call New York City home. Some are tenant friendly; they will build for you. Some will not.
A commercial realtor understands the market and where to look for the best office spaces. They know how to find a space that’s already built to your particular needs. They also know where to find ones with a landlord willing to customize and cover build-out costs.
If you need advice or assistance regarding your next commercial space’s build-out, feel free to reach out to Metro Manhattan Office Space, Inc. at (212) 444-2241.
