Tenant Improvement Construction

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Tenant improvement (TI) construction is a project that property owners or tenant businesses undertake to improve a rental space and configure it in a way that will fit their needs.

It’s similar to residential renovation projects but it is aimed at commercial real estate spaces.

As experts from VERTEX, a leading real estate and construction consulting company, point out, when leasing a commercial space, any potential TI construction project needs to be included in the lease negotiation.

Therefore, it’s essential to be clear about all the details so that both parties can agree and be aware of the extent of the project.

These customized improvements and alterations can be made for a wide range of business clients and may include:

Office space
Retail space
Medical institutions
Restaurants and/or other Hospitality spaces

The construction projects can also significantly differ in their scope. For example, some may encompass high-end, state-of-the-art finishes, while others focus on simple and moderate remodels.

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What is a tenant improvement process?

The tenant improvement process is the rebuilding of the interior section of a commercial property. It may involve structural or architectural changes to improve the space, so it accommodates the needs of a business.

As with every complex construction project, detailed planning is essential to its success. Preconstruction phase services are crucial to make the rest of the process run smoothly.

Each project comprises financial feasibility studies, conceptual estimates, material reviews, weighing out engineering options, and return on investment analysis to determine the appropriate budget.

The main phases of the tenant improvement process include:

Construction planning and design are done by a team of licensed architects and contractors.
Cost estimation can also be performed by the contractor or architect you hired. Sometimes it’s necessary to wait for the final plans to be approved by the local authorities to get a final estimate.
Construction management for regular evaluation and reports on the progress to ensure everything is going according to schedule.
Payment to contractors is usually delivered after the work is completed. Still, contract terms and project requirements may call for exceptions.
Certificate of occupancy that proves that all inspections are completed and approved by local authorities. This means that the structure is safe, up to code and can be open for public and private use.

Examples of tenant improvement

The most common types of tenant improvement construction include the following:

Reconstruction and restoration.
General restoration.
Construction defect repair.
Insurance restoration.

Some of the improvements can include new layouts and interior design or:

Mechanical upgrades like electrical engineering works, plumbing, or HVAC.
New lighting design and enhancements.
Interior design details and finishes like new floors, paint, countertops, signage, or other design elements that make the space unique for its purpose.

What are the pros and cons of tenant improvement construction?

The main benefits of tenant improvement construction include raising the value of the property and creating a unique customer experience, both technically and aesthetically.

In addition, this is an investment that presents a business asset that adds value to the property, and that value can be capitalized upon.

Before deciding on any improvements, a detailed analysis of costs vs. benefits should be carried out.

Property owners & tenant businesses should also consult with experienced financial advisors and market research experts.

The downside of this endeavor is that all the improvements might not pay off in the long run.

It’s also risky to make changes to a space that may seem modern and innovative if there’s no market for such spaces at that particular location.

Therefore, a detailed area analysis is critical before making significant and costly investments.

It may be more cost-effective to leave your property as it is or change your plan according to demand and expert market research

Still, TI construction can be a great option for unlocking more value to the commercial property for businesses and communities to thrive