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What is a Tenant Improvement (TI) Allowance?

I’m Max McDonald. I’m part of the Tenant Rep team here at AQUILA Commercial, and today we’re gonna talk a little bit about the TI allowance; The Tenant Improvement allowance. It’s one of the most important economic parts of a commercial lease. And we’re gonna discuss what it includes, what it doesn’t include, and why it’s so important.

So a tenant improvement allowance, or as we call it a T.I. allowance, is probably one of the top three most important economic factors in a deal, other than the rent that you’re paying or the term length that you’ve got. The T.I. allowance is really the third economic component that goes into it. And what it is, is a sum of money that the landlord pays to the tenant, in order to help them build out their space the way they want to.

The things that tenants are typically using their T.I. allowance on are simple things like paint and carpet, building out offices/conference rooms, building out a break room. The basic things that you walk into an office and it feels like an office floor. You know, maybe you’re using your T.I. allowance to go in and tear down offices, and make it more open. Create more creative light fixtures, or things that will belong to the space, and the landlord will feel has some longterm value to the building. (upbeat music) Couple biggest things that the T.I. doesn’t cover that tenants need to be thinking about: furniture is a big one, moving costs in general, data cabling.

Those are all things that aren’t considered hard costs that are really improving the building, but sometimes we will see that a landlord might allow a tenant to use a small portion of the T.I allowance for those types of things in order to make it more desirable for them to move into the building. (upbeat music) From the landlord’s perspective, the tenant improvement allowance is a part of the budget for the building, as an investment moving forward towards the long term. Landlords want to feel like their investment is going back into their building, and they wanna be able to realize that value moving forward. And not just use it as a benefit to the tenant to get them in for day one. Tenant improvement allowance for most tenants, our goal is to have what the landlord is providing in a T.I. allowance be enough to cover what the tenant wants to do in the space. So a more realistic example might be, you go into a space and you really walk in and it’s wide open. And you need to add three small conference rooms and a break area. Okay, well how much is that gonna cost? And every space is gonna benefit from having a break area in it, so there’s longterm value for the landlord there to say, “Okay, well if I provide this money to get this tenant “in here because they want a break room, well then “I’ll always have that break room there, “and that’s gonna be a value to the tenant moving forward.”

So in conclusion, the tenant improvement allowance is an extra sum of money that the landlord gives to the tenant to make the space kinda how they want it, and typically the landlord wants to see that as an investment moving forward. But really it’s up to the tenant, to build out the space how they feel fit. For more information, be sure to check out our full article on our blog and remember no one knows Austin better than AQUILA.

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