In commercial construction, the term ‘white box’ refers to the level of finish a space has before the tenant remodels or finishes it. As a business owner looking for a new commercial property, you must have heard real estate brokers and landlords often mention this term. Hence, you must understand the concept in its totality and avoid wrong expectations.
The term white box is also synonymous with vanilla shell, lit shell, plain vanilla shell, plain vanilla box, warm vanilla shell, warm vanilla box, warm white box, and warm white shell.
In this blog, we will grasp the meaning of white box construction, its inclusions and exceptions, and why commercial business owners should trade in ‘white boxed spaces’. As a reader, you will also know how much budget to allocate for shell build-outs, what comes in their step-by-step process, and how to distinguish white boxes from other types of box construction.
White Box Construction Definition
White box in construction is a partially built lease space finished with HVAC systems, plumbing, lighting, basic electrical wiring, ceiling, and white painted walls (thus, the term ‘white box’). The space is built according to the regulations and codes of that particular area. This practice of ‘whiteboxing’ removes all traces of the previous tenant from a second-generation commercial space. Then, the owner strips the space back to a raw, shell-like state with no finishings. Hence, the white box real estate space serves as a blank canvas for new tenants to build out their space by performing tenant improvements (TIs) at much lower costs.
Whiteboxing is popular among commercial landlords who keep the developed white boxes ready for new tenants and attract them with tenant improvement allowances (TIA). Until the tenant hires a contractor and finishes the space with their customizations, a white box building is not move-in ready.
A potential misconception one may hold is that the white box condition merely contains a basic structure with minimal work done. In reality, several components contribute to building it to local code and preparing for TIs to be implemented on the interior, at times on the exterior.
What Includes and Does Not Include in a White Box Condition?
When the landlord delivers the commercial space to the tenant in a white box condition, it has foundational components already installed before leasing. This white shell does not include tenant-specific improvements.
Following are the provisions that you can and cannot expect from a white or vanilla box construction:
White Box Includes | White Box Does Not Include |
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Exterior Shell (Exterior Walls, Finished Roof, and Rear Wall) | Interior Walls Finishing (Painting or Wallpaper) |
Interior Finish (Sheetrock Walls, Separation Walls, Windows and Doors, and Concrete Flooring) | Additional Plumbing Fixtures |
One or Two ADA-Compliant Restrooms and Drinking Fountain | Upgraded Electrical Fixtures |
Standard Electrical Wiring | Telephone, Cable, and Data Wiring |
Plumbing Fixtures | Security Systems |
Heating, Ventilation, and Air Conditioning (HVAC) | Specifications for the HVAC system |
Fire Protection System | Tenant Equipment and Furniture |
Accessibility Requirements (Elevator or Staircase) | Tenant Improvements (TIs) |
Building Permits and Required Licenses |
Benefits of White Box Construction
A landlord prefers to deliver space in white box condition because it becomes more presentable to prospective tenants and enables them to visualize their desired layout within the space. Likewise, tenants and their contractors receive more creative freedom to make the space efficient.
The noteworthy benefits of whiteboxing a business space are explained below:
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Greater Scope for Customization
Every business space needs unique design and layout options based on its company’s brand or industry preferences. When leasing out a commercial space, a white box finish provides tenants with a clean slate to be customized with their detailed improvements. You can change the floor plan at the initial stage, choose designs and materials, hire workers, track work progress, and make repairs.
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Budget-Friendly
With the core elements of the build already installed, potential tenants have to spend less money on preparing the site before tenant improvements. The difference between spaces with and without white box finishes can reach up to 20-30%. Furthermore, landlords offer lessees tenant improvement allowances that help to offset the costs while still allowing them to enjoy the benefits of a customized space.
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Faster Move-in
One major advantage of white box construction is that you will receive the keys to your new commercial space as soon as possible. When the property is in ready-to-build condition, you can complete the design and build process faster and move in quickly to start your business. Some landlords allow tenants to make repairs even before the building is put into operation, which gives you the opportunity to repair it in a shorter time.
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Quality Check of The Space
Buying a new space with a white box finish is the safest to purchase in the sense that you can easily spot any construction defects. Suppose the developer has violated construction technology, for instance. In that case, you can see cracks in the walls or leaky corners immediately and not years later when the damage becomes severe.
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Zero Damage or Wastage
Since there are no previous fixtures for the new tenants to remove or throw away post whiteboxing, zero waste is produced. This also eliminates the possibility of any unnecessary damages before starting the tenant improvement work.
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Versatility Appeals Tenants
The absence of specific interior finishes in white box spaces makes them extremely versatile and adaptable. Tenants can customize the white box to fit their business or branding requirements. Hence, this level of versatility appeals to a wide range of commercial tenants, increasing the number of lessees for landlords.
Why is White Box Construction Gaining Popularity?
One of the biggest reasons contributing to the white box’s popularity in commercial real estate is its flexibility. White box construction offers contractors, business owners, and interior designers the power of personalization to transform an existing space as per their exact specifications.
Moreover, white box construction is environmentally friendly because it reuses existing structures and reduces the need for fresh construction materials. Therefore, commercial building owners prioritizing sustainability are viewing white box construction as a low carbon footprint, modern real estate solution.
In luxury real estate, whiteboxing is becoming an effective property-selling strategy. Most high-end buyers have the budget to customize and remodel the function of a space extensively. Whiteboxing strips off all decor and clutter which shifts the buyer’s focus to the space’s distinctive architectural features.
Josh Greer of Hilton & Hyland tells CNBC, “There’s increasing recognition that ‘designer-ready’ is exceedingly more attractive than ‘move-in ready’ to the ultra-wealthy.”
Other Types of Box Finishes
Now that you have learnt what is a white box in construction, it is equally helpful to familiarize yourself with different types of ‘box finishes’ in commercial construction, so you can better communicate with your contractor about what exactly you need.\
White Shell / Vanilla Shell vs Gray Shell
White Shell vs Grey Box/Cold Shell – A gray shell is an unfinished commercial space with unfinished floors, bare unpainted walls, and no plumbing, electrical, HVAC or sprinkler systems. The space is cold due to the absence of HVAC and grey due to the untreated concrete walls and floor.
White Shell vs Warm Grey Box – A warm gray box finish is when HVAC systems and electrical fixtures, and plumbing systems are in place. There is no permanent ceiling lighting, only minimal lighting, and fire alarm protection.
White Shell vs Cold Grey Box – A cold gray box finish does not have a permanent HVAC system. Basically a weather-resistant roof, with unfinished walls and floors. This stage is as bare as the space can be.
White Shell vs Cold Dark Shell – A cold dark shell includes unfinished walls, no ceilings, unfinished floors, and no HVAC ductwork. Plumbing and electrical systems, room separators, and sprinkler systems are also absent.
White Box Construction Costs
Like a typical construction project, the construction cost of a white box building depends on the existing condition and size of the area, definitions, and scope of work. Extra expenditure includes securing specific permits and any demolition or construction that needs to be done.
Here are some common costs for tenant improvements or whiteboxing in the US:
- HVAC Units with Supply/Return Air Systems and Controls – $5-$10 Per Square Foot
- HVAC Units Replacement – $5,000-$8,000 Per Unit (Generally for Retail)
- Drywall – $5 to $10 Per Square Foot
- Drop Ceiling with Tiles – $4 Per Square Foot
- Lighting and Electrical Switches – $4 Per Square Foot
- Restrooms – $5,000-$10,000 Per Restroom
- Flooring – $4 Per Square foot
- Architecture – $3 Per Square Foot
- MEP Services – $1.50 Per Square Foot
- Project Management – 4-5% of the Construction Costs
- ADA Inspection – Greater than $50,000
- Permitting Costs – Demo Permit $250, Full Building Permit $1,500
- Licensing and Registration – $1,500 (Texas)
Key Elements of a White Box Build-Out Project
A white box build-out means preparing the commercial space for occupancy. The process involves installing lighting, flooring, interior walls, dividers, and other furnishings. A landlord may purchase materials for the tenant build-out or offer a ‘rent-free’ period to tenants for the construction process.
White box buildings are not ready for occupancy, hence, there is plenty of scope for customization. Your landlord will offer you a tenant improvement allowance that is negotiated through a lease agreement to build out your space. Once the lease agreement has been finalized, your project team can proceed with the whiteboxing process.
Here is the elaboration of the key elements in the white box build-out project:
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Tenant Improvement Allowance
When the landlord is offering TIA, it excludes costs for furniture, fixtures, equipment (FFE), paint or wallpaper, and other upgrades related to your business. These allowances are granted only for aspects related to the white box construction and not for the business occupying it.
The tenants pay for the initial build-out costs. The landlord will either disperse funds through progressive payments or a lump sum payment at the end of the construction process. Finally, the landlord and tenant finalize the amount during lease negotiations.
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Lease Negotiations
Property owners or landlords may not always offer 100% of the total improvement costs, but smart negotiation skills can land you a better deal. Depending on your level of specialty upgrades, negotiate the allowance amount considering the lease term and the improvements the owner will retain at the lease end.
Both the tenant’s specifications and TIA amount should be mentioned meticulously in the lease agreement. This will help you secure the landlord’s investment and save both parties from legal troubles.
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Lease Agreement
The lease agreement should be negotiated and finalized before the completion of the build-out. Although landlords and tenants have different interpretations of the lease agreement contract, the contract should be detailed and all-encompassing. This removes the risks of confusion, extra costs, and legal complications associated with your box white box construction.
During finalizing the agreement, legal consultation is a must to confirm all the contract stipulations are clear and acceptable to both parties. You have to be extremely cautious, especially for long-term and high-value leases.
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Build-Out Contractor
For executing a successful white box build-out, hire a reputed commercial contractor who is experienced in whiteboxing projects similar to yours. In collaboration with architects, your contractor should plan the space’s design which is compliant with building code requirements. Your commercial contractor should also acquire all necessary permits before construction.
Make sure the contractor provides a comprehensive cost estimate that covers itemized bids. If there comes additional expenses or changes in the future, the contractor must inform you and not keep any hidden costs. Hence, hire someone who clearly communicates and delivers a fast turnaround without compromising quality.
Drawbacks of White Box Construction
Although a white box space provides numerous benefits to property developers and business owners, it comes with some disadvantages too. Here are the potential drawbacks of white box construction:
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Longer Build Time
White box may seem like a quickly convertible shell space, but the underlying process behind is thorough. All components must be built-to-code and ready for new interior tenant build-out. It should obtain all necessary licences and permits depending upon the local jurisdiction.
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Not Move-In Ready
With older white-boxed spaces, tenants might need a whole lot of replacements and improvements, which can be expensive. Also, since a white-boxed space is not move-in ready, tenants have to wait until the remodeling is finished.
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Costs for Landlords
If the tenant has specific customizations for their space, landlords may have to spend extra money to remove them and install new finishes once the lease term comes to an end.
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Tenant’s Responsibility
A white box space is unfinished, so the chances of encountering unexpected issues during the construction process are greater. It’s the tenants who have to undertake responsibility for all aspects of the white box build-out.
Is White Box Construction Ideal for Your Space?
Whether white box construction is right for you or not depends on your specific goals and preferences as a business owner. Consider the following factors before making your decision:
- Budget
- Timeline
- Design flexibility
- Brand image
- Target customers or clients
- Long-term vision for the space
- Market trends for white-boxed properties
White box construction must help you achieve your project requirements and business objectives. Ensure you have the resources to handle the added responsibility that comes with the build-out process. Work with an experienced commercial general contractor carrying a proven track record of white box construction projects.
Property owners thinking of whiteboxing their space should assess its potential based on additional factors like business location, scenic views, and proximity to amenities. Even if the commercial space needs significant repairs, the buyers will focus more on possibilities.
Examples of Successful White Box Projects
The Penthouse in Sierra Towers, Los Angeles
Billionaire heir Evan Metropoulo merged and white-boxed two units of a 32nd-floor penthouse atop the Sierra Towers to create an interior space ready for renovation. Through white box construction, Metropoulo stripped everything from floors, walls, and other interior finishes. The 7,000-square-foot West Hollywood penthouse enjoys panoramic views of the city with a 4,000-square-foot wraparound balcony. (Source)
Tech Training Hub, San Francisco
A former commercial office space located in a business district of San Francisco, California underwent white box transformation, evolving as a tech training hub. The whiteboxing process removed all of the previous interior elements to create a blank canvas. It allowed the new tenants layout customization to build tech-integrated workspaces and infrastructure.
Coffee Shop to Storefront
The owners of the Urban Bean cafe decided to sell out their property situated in the city’s square. To attract high sale prices, they outstripped the coffee-centric interiors and finishes, creating an empty space. Whiteboxing the cafe enabled the new tenants to build a modern retail storefront at a prime location.
Summing Up
White box construction is the process of preparing a commercial building for new tenants to finish the space with their own specifications and move in. It acts as a blank template that provides tenants with a wide range of creative possibilities. At the same time, whiteboxing minimizes the additional work to build-out space compared to a cold shell condition.
Are you planning to buy and develop a white box space for your business? Constructive Solutions will offer you exceptional white box construction services and implement tenant improvements suitable for your company’s needs. Our commitment lies in client satisfaction from the beginning of the project to its end.
Contact our team for your next project!
FAQs
What is the meaning of whiteboxing?
Whiteboxing is removing the existing finishes of a commercial property to create a blank canvas with only basic features intact; for example, lighting, ceiling, HVAC, utilities, and elements per code. The process of whiteboxing allows tenants to clearly visualize the architecture and renovate it with custom finishes.
Why white box is popular in retail?
Retail spaces under 10,000 square feet do not require many tenant improvements. Small retail tenants only need a large front area and back area for employees. For this reason, white boxes having a wide open space are in demand among retail tenants.
What is the per-square-foot cost for a vanilla shell build-out?
Depending on the level of finishes, a general contractor in the United States may charge between $20 to $50 per square foot for building out a warm white or vanilla shell space.
Relevant Resources;
- How to Choose Right Tenant Improvement Contractor in San Francisco?
- Everything You Need To Know About Build-Out
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