Your current office space is no longer working for your organisation.  You are bursting at the seams, unable to hire any help, otherwise setting up shop in the nearest broom closet.  Fortunately, your lease is nearing the end of its term and a refresh is in order.  You are currently located in an older, tired building, so you start the search for a new space… and somehow you got stuck taking the lead on this project with little real estate experience.

You decide you are out of your comfort zone so you turn to NAI Turner Drake for help.  After reviewing your space wish list, you are provided with a list of potential locations.  Some are currently built out with full offices, boardrooms, meeting rooms, kitchens, washrooms etc., but there is not one that completely suits your needs.  You feel the best location is in a brand new building, fresh on the market, so you can achieve the exact layout to maximise efficiency in your space.

You walk into the empty bay, typically with an unfinished concrete floor, exposed ceiling, unpainted gyproc walls and the HVAC, plumbing and electrical only running to your unit, not throughout.  The landlord provides a space planner to help you layout the office based on your requirements.  You reflect back on your recent kitchen renovation and think “Hey, this won’t be so bad”.  The space plan comes back and now it’s time to determine the budget… how much is this going to cost and how will it be paid? You are shocked, feeling rather light headed and fearing for your job when the quote comes back from the general contractor… “I could build a new house for that price!”.

The average cost to build out a typical office space is $60 per square foot.  This figure obviously fluctuates with the market and inflation; however we can use it as a starting point.  Typically, a landlord will include a tenant improvement allowance within the asking net rent to help offset these costs.  The remainder is to be paid by the tenant.  There are a few options: a tenant can cut a cheque for the entire amount (this can have an accounting benefit), the tenant may amortise the amount over the lease term and pay back to the landlord as part of the rental payments (this helps spread the costs over the lease term, but the landlord typically charges interest on this amount) and/or a combination of both options. The landlord will make these concessions based on the strength of the covenant of the tenant.

Construction items to consider when building a space from a raw state:

Partition Walls (Metal Studs and Gyproc):  Even in an open concept space, washrooms, meeting rooms, etc. must be partitioned from the main space.

Flooring:  Flooring can range from carpet tiles to laminate flooring to ceramic tiles and anything in between. Carpet tiles can be among the more cost effective flooring options, while ceramic and porcelain tile are among the more expensive flooring types.

Paint: Fortunately, paint is paint.

Ceiling Tiles: A suspended T-bar ceiling grid can help improve sound nuisances within an office.

Lighting: There are many lighting options available today, including more efficient LED lighting.

Electrical Distribution: In a new build, the landlord typically brings electrical into the unit, but in some cases it is the tenant’s obligation to install a transformer and then distribute the electrical throughout the unit (outlets, drops, etc.).

HVAC Distribution: Again, the landlord will run HVAC to the unit, but it then becomes the tenant’s responsibility to distribute the HVAC throughout the unit. This will depend on the unit layout, an open concept office will require less distribution and diffusers than a fully built out space with all private offices.

Plumbing: The landlord will have a plumbing stack to the unit, but it then becomes the tenant’s responsibility to distribute throughout the unit. It is more cost effective to keep all plumbing in the same vicinity, as to avoid cutting into concrete to run pipes, significantly driving up construction costs.

Millwork (Kitchen, storage, etc.): Millwork comprises of kitchen cabinets, storage cabinets, washroom counters, etc. These items will depend on the space design.

All of these items add up.

Remember: the stronger your tenant covenant, the more concessions you can negotiate with a landlord.

Leasing and Sales Consultant, Ashley Urquhart, assists both landlords and tenants meet their space requirements, and vendors and purchasers optimise their property portfolios.

To learn more about Ashley, visit our Facebook page to see her Featured Consultant article!