Like any industry, commercial construction is laden with distinctive terminologies. While these are regularly used by contractors, architects, engineers, and builders, outsiders might find them overwhelming. ‘Build-Out’ is one such commonly used term in commercial construction.
When you are planning to lease a commercial building, you contemplate whether it needs renovation or not. Every space varies in size, shape, and design and may not be a perfect fit for your business. This leaves them underutilized, but with renovation and tenant improvements they can be tailor-made for your company.
Previously occupied second-generation structures require either minimal or full makeover. This is where Build-Out comes into the picture.
So, what does Commercial Build-Out mean? Why is it beneficial? How to do it? Who is involved in its process? Here is everything you need to know :
What Is A Build-Out?
A Build-Out is a process of altering or modifying an existing commercial space as per the recommendations of tenants or contractors to make it move-in ready.
When a space is being leased, it’s basically a blank slate without any character. The intention is to transform a raw property with improvements to reach a state of completion, making it functional for the tenants occupying the space. This aspect of the construction process is called a Build-Out.
The Build-Out is also known as Tenant Improvements (TIs) or Leasehold Improvements when it is done as part of a lease for a tenant. Improvements that are recommended by tenants or contractors can be for staying in compliance with local building codes and regulations.
Renovations, big or small, can add personality and functionality to your business.
How Build-Out Is Beneficial?
Workspace is the face of any business. It is the first impression customers get of a company and the productivity hub for the employees. One of the notable benefits of renovating is that it elevates your company image and helps you stand out among your competitors.
Most tenant improvements are performed on existing commercial spaces, which in their original state, may not correspond to the needs and preferences of the new tenant. For example, if you are turning a retail store into a restaurant, then you have to install proper plumbing systems and add special rooms for privacy. By bringing tenant improvements, you can renovate the old space to accommodate your business needs.
Build-Outs are an excellent way to incorporate the latest technology and accommodate the advances in your field. Utilizing a current space more wholesomely or adding a new space can help enhance your business’s services. Workers will be able to use the newest equipment and tools which will make your facility more efficient. This will attract quality employees to your business.
What Are The Types Of Build-Out?
There are two types of a Build-Out meaning. Each of them has its own benefits and drawbacks. They are:
Tenant Build-Out – This Build-Out type puts the tenant in the driver’s seat. The tenant is the one who hires the contractor, architect, and engineer. All the tenant improvements will need to be mutually agreed upon. The tenant has full responsibility from hiring to construction and enjoys much more control over the process and the result.
In this scenario, the tenant has to negotiate for a Tenant Improvement Allowance (TIA) from the landlord to cover all or the majority of the Build-Out costs. Here, the level of responsibility is higher for the tenant.
Turnkey Build-Out – If you don’t have the interest or time to micromanage your construction project, this option is preferred. With the turnkey Build-Out, the landlord is willing to complete the construction to the agreed-upon specifications and covers the costs of all of the renovations. When you get the key for your commercial space, it will be move-in ready.
Although it’s a cost-saving option, it comes with certain drawbacks. The landlord may use low-quality materials and labor that will lead to poor work. It is better to mention in your lease negotiations the level of quality and the general contractor that must be hired.
Who Does The Build-Out?
The primary workers on a project where you are planning to Build-Out are an architect, a designer, and a contractor.
The architect is the one responsible for designing the interior commercial space. The tenant works with an architect and designer to devise a suitable plan for layout and design.
According to that, the Build-Out will be then physically constructed by the commercial contractor. A contractor can also suggest technical and building improvements. The previous improvements to the commercial space will be demolished and removed.
The architect and contractor have to come up with the official documents used for the construction in order to earn the relevant permits. It’s their job to ensure that the Build-Out is designed and built in compliance with local building codes and regulations.
Also, the architect and contractor will have to synchronize the Build-Out project with the landlord, project engineer, and tenant.
Things To Consider Before A Build-Out Project:
Before starting your Build-Out project, you should discuss construction requirements with your commercial contractor. An in-depth discussion will ensure that the space is designed to fit your exact specifications. Some essential considerations include:
Space – What type of space will your business need? There are several types of commercial spaces like offices, reception areas, conference rooms, breakrooms, warehouses, restrooms, etc. For example, if your space is retail you may need a parking lot, seating areas, showroom, etc.
The Number of Tenants – Based on the expected number of employees and customers for the business, you should plan the restroom requirements, entry and exit points, and many other code-related elements related to the occupant load.
Quality of Finishes – Do you want premium woods or simple laminate will fulfill your cause? According to your audience and clients, you can decide how high-end finishes you will require in your space. From basic to high-end, the quality of finishes affects the costs of your Build-Out.
Electrical, Plumbing, and HVAC Elements – Most commercial buildings already have electrical wiring and plumbing. Try your best to design the space around these existing systems. This will save thousands of dollars during the Build-Out process. Take note of this along with any additional outlets or fixtures. For HVAC installations, ask the landlord or building owner to cover the associated costs. If not possible, pay for it as a monthly rent amount. Unless a replacement is needed, HVAC shouldn’t cost you much money.
Timeframe – Consider when you will need the space to be ready for occupation.
How To Do The Build-Out?
Right from the initial planning to the day of move-in, here is an explanation of the whole Build-Out process :
The Build-Out process can be divided into four main stages – Lease Negotiations, Design, Permits, Zoning Approvals, and Construction.
The first step is to take permission from the landlord, property manager, or the owner of the building. You can negotiate the Build-Out with the landlord and come to an agreement that will include a Tenant Improvement Allowance (TIA).
This allowance covers all the construction and design costs required to get the space suitable to your standards. There should be a clear understanding of what type of improvements will be brought to the building.
Apart from Build-Out costs, this negotiation will also determine who will handle the project, and who will be responsible for the payment. All this information should be clearly stated in the lease.
A commercial real estate agent can give tips on TIAs, especially on dollar values and legal terms.
In the design stage, the scope of the project is defined. This is done by site selection and inspection. You will then engage with the architects, engineers, and contractors to set the goals of the project.
A test fit which is a floor plan will be created to test that the space will be able to accommodate the project needs. It helps visualize how tenants will occupy the space and provides an idea of the construction scope. Based on this, the commercial contractor provides the preliminary budget and schedule estimates.
Once the lease is signed, your project team will design the layout, themes, and overall look of the space. Finally, the team will produce the construction documents needed to submit to the local authorities for permits.
Permits And Zoning Approvals:
Almost all Build-Outs will require a permit from the city authorities before construction can begin. Though a simple paint or furniture change may not require permitting. Your contractor will guide you on whether the project needs to go through the permitting process or not.
Zoning approvals are important to check that a company is where it is supposed to be. These procedures are carried out to ensure that commercial property isn’t erected close to a residential property.
Permits are necessary to maintain structural integrity and overall safety throughout the construction project.
Typically, the permitting process for a standard Build-Out will take about six to eight weeks. This period can differ based on the jurisdiction, time of the year, and other factors.
After the construction designs are finalized and permits are obtained, it’s time to proceed with the actual construction process.
Depending upon the scope of the project and the original state of the property, this construction process may vary largely. It may include :
- Demolition of Existing Tenant Improvements
- Framing and Drywall
- Ceiling Repair and Replacement
- Finishing Touches like Painting and Flooring to Match Company’s Identity
- Mechanical Systems
- Electrical Power and Lighting Systems
- Plumbing Systems
- HVAC Framing
- Accommodations for the Latest Technology
- New Construction of Additional Rooms, Cabinets, etc.
A majority of Build-Outs demand a bit of framework and renovation within the space itself. This enables you to build a unique, personalized commercial space that fits you perfectly.
The final step before you move in is a walk-through inspection with the project team. During the walk-through, they will identify the parts that do not match the construction specifications or standards.
These identified parts are added to a ‘punch list’. The general contractor will then complete or correct each issue before receiving final payments.
After all the tasks of the punch list are accomplished, one last walk-through is conducted. This is to reaffirm that the issues are solved, the design meets the construction drawings, and the work is to your satisfaction.
With the punch list done, the space is now fully ready for you to move in and occupy.
Who Pays For The Build-Out?
The cost of the Build-Out can be paid by the landlord and tenant, or split among both parties. How these costs are divided mainly depends on market trends, tenant negotiation skills, and the type of space within the construction.
When a commercial space is offered for lease, tenant negotiations represent the amount of money the landlord will contribute toward the tenant’s Build-Out. This money is known as Tenant Improvement Allowance (TIA). The TIA is usually offered as a set dollar amount per square foot.
A commercial real estate agent can consult on the terms and how much the amount of the allowance should be as part of the commercial lease.
The Bottom Line
Build-Out or Tenant Improvements are custom changes made to buildings that help uplift the aesthetic appearance and functionality of your business. From corporate offices, medical facilities, and warehouses to shopping centers, hotels, and retail spaces, Build-Out is the process of taking any existing commercial property and tailoring it to suit the needs of a company or a business.
Tenant improvements are extremely beneficial to business owners as they enhance the practicality of the commercial space, resulting in increased productivity and efficiency.
These tenant improvements are usually made by a licensed, qualified contractor which is recommended by a building owner or lessee. Therefore, for a successful Build-Out construction project, hire a reputable contractor with years of experience, quality references, and legitimate licensing.
It’s equally vital to have a reliable team of engineers, architects, and tradesmen. This will make sure that your project is executed professionally, timely, and within budget.
Contact us at Constructive Solutions, Inc. to kickstart your Build-Out project!