Tenant Improvement Calculator Formula
Understand the math behind the tenant improvement calculator. Each variable explained with a worked example.
Formulas Used
Total TI Cost
total_cost = total_ti_costLandlord Allowance
landlord_covers = landlord_allowanceTenant Out-of-Pocket
tenant_out_of_pocket = tenant_costTotal Cost Per Sqft
actual_cost_psf = square_footage > 0 ? total_ti_cost / square_footage : 0Allowance Coverage %
allowance_coverage = total_ti_cost > 0 ? landlord_allowance / total_ti_cost * 100 : 0Variables
| Variable | Description | Default |
|---|---|---|
square_footage | Square Footage(sqft) | 3000 |
ti_cost_psf | Estimated TI Cost Per Sqft(USD) | 45 |
landlord_allowance_psf | Landlord TI Allowance Per Sqft(USD) | 30 |
architecture_pct | Architecture & Design Fee(%) | 8 |
permit_cost | Permits & Inspections(USD) | 3000 |
contingency_pct | Contingency(%) | 10 |
base_ti_cost | Derived value= square_footage * ti_cost_psf | calculated |
arch_fee | Derived value= base_ti_cost * architecture_pct / 100 | calculated |
subtotal | Derived value= base_ti_cost + arch_fee + permit_cost | calculated |
contingency | Derived value= subtotal * contingency_pct / 100 | calculated |
total_ti_cost | Derived value= subtotal + contingency | calculated |
landlord_allowance | Derived value= square_footage * landlord_allowance_psf | calculated |
tenant_cost | Derived value= total_ti_cost - landlord_allowance > 0 ? total_ti_cost - landlord_allowance : 0 | calculated |
How It Works
Tenant Improvement (TI) Budgeting
Tenant improvements are modifications made to commercial space to suit a tenant's specific needs. Understanding costs and the landlord's contribution is critical for lease negotiations.
Typical TI Costs
Landlord TI Allowance
The landlord typically provides a per-square-foot allowance toward improvements. This is negotiated in the lease and depends on:
Important: TI vs. Rent Tradeoff
A higher TI allowance often comes with higher rent. The landlord amortizes the TI cost into the rent over the lease term.
Worked Example
3,000 sqft office at $45/sqft TI cost, $30/sqft landlord allowance, 8% architecture fee, $3,000 permits, 10% contingency.
- 01Base TI cost: 3,000 x $45 = $135,000
- 02Architecture fee: $135,000 x 8% = $10,800
- 03Permits: $3,000
- 04Subtotal: $135,000 + $10,800 + $3,000 = $148,800
- 05Contingency: $148,800 x 10% = $14,880
- 06Total TI cost: $148,800 + $14,880 = $163,680
- 07Landlord allowance: 3,000 x $30 = $90,000
- 08Tenant out-of-pocket: $163,680 - $90,000 = $73,680
- 09Allowance coverage: $90,000 / $163,680 = 55.0%
Frequently Asked Questions
Can I negotiate a higher TI allowance?
Yes. TI allowances are highly negotiable, especially in tenant-favorable markets. Offer a longer lease term, demonstrate strong credit, or offer above-asking rent in exchange for more TI dollars. You can also negotiate a TI loan structure where the landlord amortizes excess costs into rent.
What happens to TI at lease end?
Most improvements become property of the landlord. Some leases require you to remove improvements and restore the space (restoration clause). Negotiate removal of this clause for standard office buildouts. Specialty buildouts (kitchen, medical) often must be removed.
Should I use the landlord contractor or my own?
Using the landlord contractor may simplify the process and ensure work meets building standards, but often costs more. Using your own contractor gives you more control over costs and quality. Many leases allow tenant choice with landlord approval of the contractor.
Ready to run the numbers?
Open Tenant Improvement Calculator