A Guide to Tenant Improvements for the Industrial Client0

Posted by Thomas Miller, CCIM

tenant-improvementIt is a rare occasion that a tenant will find a large industrial property that works for them in “as-is” condition. Most long-term industrial leases include what we refer to as tenant improvements, or TI’s. If you’re in need of an industrial facility, bookmark this page for future reference.

Tenant Improvements

TI’s are customized alterations specific to the needs of the new tenant. These alterations are completed by the building owner as part of the lease agreement. Some tenant improvements help improve the overall value of the building and the cost can be justified by the building owner as a capital improvement. Common examples of capital improvements include:

  • upgrading lighting to a more energy efficient system
  • upgrading or repairing the existing flooring
  • replacing dated or broken HVAC equipment
  • adding bathrooms

Note that these improvements should not affect your lease rate.

While many common tenant improvements are also capital improvements, some are not. For instance, if your business requires the addition of a paint booth, that is very specific to your business and the owner will likely have to remove it after you vacate. In this case, the owner may approve the installation of a paint booth but they could ask you to cover the cost. Or, in some cases, the owner will pay for the specific improvement and amortize the cost over the term of your lease.

Some of the trickiest and most expensive improvements include:

  • Upgrading plumbing. As most warehouses are made of concrete and steel, it is hard to add or remove drains and pipes.
  • Electrical upgrades. Often, the owner will have to work with multiple contractors, including the power company, to achieve a power upgrade. Although these upgrades are complicated and time consuming, they are not impossible.

The Best Way to Negotiate Tenant Improvements

You can see how the negotiating process may become complicated if your business requires very specific tenant improvements. Industrial agents are familiar with this process and are knowledgeable about what it takes to complete these projects. When you’re viewing spaces with your agent, it’s best to be forthcoming with all of your requirements.

Additionally, if you have a large tenant improvement requirement, make sure you are giving yourself plenty of lead time, as negotiating and completing improvements can take several months. If you are looking to lease an industrial space and you have any questions on tenant improvements, please reach out to Ali Forma at Miller Industrial Properties to learn more about the process.

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About the Author

Thomas Miller, CCIM

Thomas Miller, CCIM is the president and broker of Miller Industrial Properties in Reno, Nevada. He has worked in industrial real estate since 1991, with 15 years of previous experience designing and building industrial warehousing and manufacturing facilities in the northern Nevada market. Contact Tom at tom@mipnv.com or 775-742-9891.

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