The cost of landlord provided Tenant Improvement Allowances (also known as TIs or TIAs) are rising throughout the country. While much of this can be attributed to recent trends in office design and the overall state of the construction industry, there are other factors as well. Here are a few others:

Supply & Demand

Landlords need to attract tenants to their space. The longer an office space sits unoccupied, the more it hits the landlord’s bottom line. This has understandably impacted supply and demand. This is motivating landlords to offer more abundant and generous TIA packages to compete for tenants.

New Development

In recent years, there’s been an uptick in new developments and construction. This has tenants navigating towards more modern higher-end spaces. To do this, landlords at older buildings are willing to offer a more generous TI allowance to attract this kind of tenant to their space. Landlords are basically telling prospective tenants they’ll pay to update the space to suit their exact wants or needs. Even current landlords find themselves doing this to retain tenants. They’re offering more generous TI packages for updates and buildouts to encourage tenants to stay rather than relocate to a newer space. Comparatively, landlords at the newly-built high-quality developments are also offering expanded TIs as a means to offset the high costs associated with a first-generation space. Both of these scenarios have driven the national rise of Tenant Improvement costs.

Rising Costs of Construction

Over the past five years, construction costs in the United States have grown more than 15 percent over. As the costs of construction materials and labor continue to rise, so does the cost of an office fit out. Today’s tenant is expecting the landlord to pay a larger portion of the anticipated buildout costs. The Los Angeles market is just one of many (others include New York City, San Francisco, Boston, and Chicago ) hit hard by the rising cost of construction. Each of the aforementioned markets ranks among the top ten nationally with the largest TI packages.

In Conclusion…

Through the last several quarters, landlords have used larger TI packages to offset peak rents and the premium pricing of new construction. Larger tenant improvement allowances have undoubtedly helped landlords sweeten economic terms for tenants. As the face value of transactions increases, TIs have helped landlords maintain the net effective rent in leases.

LOOKING FOR TENANT IMPROVEMENT IN VENTURA & LOS ANGELES COUNTY?

H.W. Holmes, Inc. has worked with many landlords on buildouts and renovations for tenant improvements in Ventura and Los Angeles counties. Our office tenant improvement services are second to none in the region. Contact us today at (805) 383-9929 for a free estimate or more details.