Paying for An Office Build Out, You or the Landlord?

Paying for An Office Build Out, You or the Landlord?

Getting the Build Out You Want

When you rent a new location for your existing business or start-up, getting your space built out exactly as you want it is key. If you are an accounting firm that needs 8 offices and a conference room, you will not feel comfortable in an open plan. If you are a technology start-up looking to create a collaborative work environment with an open layout, you are not happy in an office intensive space.

The good news is that landlords will often modify a space so it meets a new tenant’s architectural specifications. They will hire a general contractor, manage construction and, to varying degrees, pay for build-out costs. So, as a tenant, don’t assume that you will have to pay for sheetrock walls, new lighting fixtures, electrical distribution, plumbing etcetera. And keep in mind that any experienced broker will negotiate on your behalf to get the landlord to cover construction costs as part of your lease agreement.

Is a Prebuilt Office Rental a Good Option?

When an old, tired office gets vacated in a building, the landlord will often demolish it, and build it out with a generic layout that is easily marketable. For instance, if a 10,000 Square Foot floor plate becomes vacant after the previous tenant rented the space for twenty years, the landlord may divide that space and lease it as four 2,500 Square Foot units. Each unit will be completely rebuilt, so the new tenant will get a state of the art installation built to the highest standards.

If you want to lease an office for your business in a Class A or Class B building, it is advisable to ask your broker about available prebuilt units that could fit your needs.

Construction is Negotiable

Large New York City landlords are usually more open to providing a build out for credit worthy tenants. Generally ,they have their own construction companies or have established relationships with contractors. Assuming the tenant signs a lease term of at least five years (so the landlord has sufficient time to amortize the cost), the landlord will often modify an existing space, or if necessary, rebuild it. But for leases shorter than five years, landlords will usually agree to paint the space and, in some cases, provide and install carpeting.

Boutique Buildings Less Likely to Build

Since owners of boutique buildings are not geared up to provide extensive construction, they usually offer no more than a paint job or a basic floor treatment, leaving a new tenant largely responsible for further improvements. But in this scenario, you can usually negotiate some free rent in lieu of construction, as part of the lease agreement.

Retail Space & Restaurants: In “as is” Condition

Build outs of office, commercial loft, health care or showroom space in New York City are negotiable. However, for retail or restaurants (or any ground floor space), the location usually gets rented in  “as is” condition. That means that you will get the essential infrastructure (plumbing, HVAC, electrical distribution) in place, but that you will be responsible for construction. In exchange, landlords will generally offset the new tenant’s investment in improving these spaces by offering the restaurateur or retailer free rent. So, if you will have to issue your general contractor a check, you will probably not be paying rent for several months

Some Landlords Prefer to Avoid Construction

Building owners sometimes do not want to get involved in a build out. This is particularly true if the construction is of a specialized nature: for a medical facility or a salon, for example. In such situations, the landlord may provide the tenant with a work letter or rent credit to offset the tenant’s construction costs. Of course, the amount of free rent and the per Square Foot construction allowance that a landlord will provide a tenant are subject to negotiation. And your broker will work on your behalf to maximize these concessions.

Real Estate Professionals Know Which Landlords Will Build

In New York City, there are thousands of commercial landlords. Some are tenant friendly; they will build for you. Some will not. Keep in mind that a commercial realtor will search the market on your behalf to locate a space that is already built to your architectural needs, or a space that the landlord is willing to customize.

If you need advice or assistance regarding the build out of your next commercial space in Manhattan, don’t hesitate to call Metro Manhattan Office Space, Inc. at (212) 444-2241.