Tenant Improvement (TI) allowance as percentage of total lease??

[Travis Wilkes]

Good morning BP - I have searched for a comprehensive answer to this without success. I have see some really informative answers and comments by Matthew Teifke back in 2017 and Joel Owens over the years. 

A few post mention a number or a range for different levels of condition for the current space. For example, $35 per sqft for raw space or $5 per Sqft for 2nd gen space, high demand market.

This is great info, I would like to dig even further.

What percentage of the total lease would a general rule of thumb be for landlords to give TI? For example, if I was leasing $5000 for a three year term and the lease rate was $1.00 Sf/Mo or $12 Sf/Yr that would be $60,000 annually for a total lease term of $180k. What percentage of the total lease would be common to pay as TI allowance without adjusting per SqFt rate? 

Is there a general formula any landlords on here use to calculate a range or a starting point for negotiations? I understand many other factors can come into play such as market demand, condition of space etc. But my thought is if the lease per SqFt already has the market and conditions built into it, then there would be a general/standard or acceptable percentage to entice a tenant.

Or am I just off and if the price per SqFt already has all this factored into it then you just up the lease based on the TI requested and amortize it over the term?

Thanks in advance!

[Greg Dickerson]

Originally posted by @Travis Wilkes:

Good morning BP - I have searched for a comprehensive answer to this without success. I have see some really informative answers and comments by Matthew Teifke back in 2017 and Joel Owens over the years. 

A few post mention a number or a range for different levels of condition for the current space. For example, $35 per sqft for raw space or $5 per Sqft for 2nd gen space, high demand market.

This is great info, I would like to dig even further.

What percentage of the total lease would a general rule of thumb be for landlords to give TI? For example, if I was leasing $5000 for a three year term and the lease rate was $1.00 Sf/Mo or $12 Sf/Yr that would be $60,000 annually for a total lease term of $180k. What percentage of the total lease would be common to pay as TI allowance without adjusting per SqFt rate? 

Is there a general formula any landlords on here use to calculate a range or a starting point for negotiations? I understand many other factors can come into play such as market demand, condition of space etc. But my thought is if the lease per SqFt already has the market and conditions built into it, then there would be a general/standard or acceptable percentage to entice a tenant.

Or am I just off and if the price per SqFt already has all this factored into it then you just up the lease based on the TI requested and amortize it over the term?

Thanks in advance!

There are no rules of thumb. It’s all negotiable and market dependent. The allowance is always referenced in terms of $ per sqft. The tenant will pay ultimately in the price of the space. The landlord is basically amortizing the improvments for the tenant over the term of the lease. The more the allowance the more the rent and longer the term and vice versa.