Tenant Improvement Allowance Calculator Formula

Understand the math behind the tenant improvement allowance calculator. Each variable explained with a worked example.

Use the Tenant Improvement Allowance Calculator

Formulas Used

Total TI Allowance

ti_total = total_allowance

Total Estimated Buildout

buildout_total = total_buildout

Tenant Out-of-Pocket

out_of_pocket = safe_oop

Allowance Coverage

allowance_coverage = total_buildout > 0 ? (total_allowance / total_buildout) * 100 : 0

Landlord Monthly TI Amortization

monthly_amortization = monthly_amort

Total Amortized Cost to Landlord

total_amort_cost = monthly_amort * num_months

Variables

VariableDescriptionDefault
rentable_sqftRentable Square Feet(sq ft)5000
ti_allowance_psfTI Allowance (per sq ft)(USD)45
estimated_buildout_psfEstimated Buildout Cost (per sq ft)(USD)65
lease_term_yearsLease Term (years)7
amortization_rateLandlord Amortization Rate(%)8
total_allowanceDerived value= rentable_sqft * ti_allowance_psfcalculated
total_buildoutDerived value= rentable_sqft * estimated_buildout_psfcalculated
tenant_out_of_pocketDerived value= total_buildout - total_allowancecalculated
safe_oopDerived value= tenant_out_of_pocket > 0 ? tenant_out_of_pocket : 0calculated
monthly_rateDerived value= amortization_rate / 100 / 12calculated
num_monthsDerived value= lease_term_years * 12calculated
monthly_amortDerived value= monthly_rate > 0 ? total_allowance * monthly_rate * pow(1 + monthly_rate, num_months) / (pow(1 + monthly_rate, num_months) - 1) : total_allowance / num_monthscalculated

How It Works

Tenant Improvement Allowances

A tenant improvement (TI) allowance is money the landlord provides to the tenant for customizing or building out the leased space. It is a standard incentive in commercial leasing.

How TI Allowances Work

1. The landlord offers a dollar-per-square-foot allowance 2. The tenant designs and constructs improvements to suit their needs 3. Costs within the allowance are covered by the landlord 4. Costs exceeding the allowance are paid by the tenant 5. The landlord amortizes the TI cost over the lease term as part of the return calculation

Typical TI Ranges

  • Office (new build): $40-$80 per sq ft
  • Office (refresh): $15-$35 per sq ft
  • Retail: $20-$50 per sq ft
  • Industrial: $5-$15 per sq ft

    • Negotiation Tips

  • Longer lease terms justify higher TI allowances
  • Strong-credit tenants get better TI packages
  • TI is essentially a loan baked into the rent, not free money

    • Worked Example

    5,000 sq ft space with $45/sq ft TI allowance, estimated $65/sq ft buildout cost, 7-year lease, 8% landlord amortization rate.

    rentable_sqft = 5000ti_allowance_psf = 45estimated_buildout_psf = 65lease_term_years = 7amortization_rate = 8
    1. 01Total TI allowance: 5,000 x $45 = $225,000
    2. 02Total buildout cost: 5,000 x $65 = $325,000
    3. 03Tenant out-of-pocket: $325,000 - $225,000 = $100,000
    4. 04Allowance coverage: $225,000 / $325,000 = 69.2%
    5. 05Monthly amortization: approximately $3,493 (at 8% over 84 months)
    6. 06Total amortized cost: $3,493 x 84 = $293,412

    Ready to run the numbers?

    Open Tenant Improvement Allowance Calculator