Change is hard but, as Bob Dylan lamented, it is inevitable. Such is the case with tenant improvement allowances. Free rent, low rates, flexible terms and generous tenant improvement allowances have all been on the table since 2009. But as the market heats up and vacancy rates fall, tenants are finding they are losing leverage and deals are getting more favorable for landlords.
Free rent, under market rent and short, flexible lease terms have fallen by the wayside in most locations. One aspect of a deal that has always seemed guaranteed is the tenant improvement allowance. A new tenant to a building has long been able to count on the landlord paying for most, if not all, of the remodel needed to suit the incoming tenant. Whether it is carpet and paint, the addition of a few walls or a complete gut job, tenants have enjoyed not having to pay for construction projects. On a new build out from shell, landlords have traditionally offered generous allowances, usually enough to cover the full build out. However, times have changed: Vacancy rates have fallen, rents are rising and landlords are looking for the best deals….for them. That means tenants can no longer assume landlords will be anxious to pay for building improvements.