The Overwhelming Rise of the “Tenant Improvement Allowance” in the Office Market
While the office market continues to be tenant friendly and the velocity of deals in the market is slow, construction pricing has risen considerably in recent years. As a result, landlords are no longer likely to agree to a “turnkey” deal. A turnkey deal means that the landlord, at the landlord’s sole cost and expense, will pay for the architectural plans and full construction of a tenant’s space. Throughout the last 4 years contractors and suppliers have dealt with supply chain issues, long lead times, erratic material increases, and everything in between. Project pricing could change on a monthly basis…and not in the right direction.
Due to potential increases in construction during the deal life cycle, landlords are unwilling to provide carte blanche turnkey deals and have moved to Tenant Improvement Allowances (“TIA”) on almost all deals. This TIA is being given to tenants as a concession to the real estate transaction and, admittedly, the amount of these allowances continues to rise due to the market and consistent rise in construction pricing. While TIA amounts are considerable, it nonetheless puts pressure back on the tenant for rising costs on their fit-out.
The graph below will give you a sense of how fit-out pricing has increased over the last handful of years:
To help our tenants navigate this shift in deal dynamics and its impact on their bottom line, Gola Corporate Real Estate proactively has hired a true Construction Manager (“CM”), John Diemer. John is an engineer and has vast experience in all commercial and residential construction projects. Along with John, Gola’s Project and Construction Management Team has the ability to oversee the entire fit-out project on a real time basis and mitigate any post-lease signing issues that may arise with the building and the general contractor. Considering the risk involved for tenants, we feel that a tenant advocate project and construction manager is necessary. Gola understands this pivotal role and we provide Project and Construction Management at no charge to our valued clients.
To learn more about our Project and Construction Management services, please contact us.
2001 Market Street, Suite 2550
Philadelphia, PA 19103
2490 Boulevard of the Generals, Suite 100
Norristown, PA 19403