A recent report found that tenant improvement costs are rising at a faster rate than rents across the United States. The report also found that tenant improvements are the greatest challenge facing office investors, with landlords in slow-growth cities being affected the most.
“We’d love to be able to push rental rates [enough] to absorb the increased costs of TIs, but it’s just not the case,” Nightingale Properties Vice President of Property Management Brenton Hutchinson said. “You’re just eating it on the back end.”
Tenant improvement and shared areas aren’t the only cost owners and landlords have to shoulder, there’s also the whitboxing cost to remove traces of previous tenants; this can cost anywhere between $50k and $100K.
Tenant improvements are a bet on the future and should the market turn, many landlords won’t find tenants willing to pay what they had in mind when they invested in tenant improvements for their buildings.