Tips on How to Control Office Tenant Improvement Project Costs

  • 9 September 2022
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There are various tenancy improvement negotiations that could be arranged to give incentives for tenants to lure them into signing long term rental agreements. Different arrangements can be made, depending on what is most ideal for both parties (Landlord and tenant). The landlord might decide to control the cost of renovation and make all the improvements himself. Alternatively, the tenant can agree to carry out the improvement in exchange for a reduction of rent or cash incentive.

If the landlord is undertaking the tenant improvement projects, there are certain ways to go about this improvement to control cost. With the increased variations in tenant’s preference and the quirky spaces, controlling tenant improvement project cost is increasingly getting more difficult. But there are certainly ways to go about it. Below are tips to follow to control office tenant improvement project costs.

Making use of SDI (subcontractor Default insurance) instead of performance bonds

In the past, most landlords use performance bonds to protect themselves in case a subcontractor fails to complete their job. But these bonds could be very rigid and expensive. A very good alternative is considering subcontractor default insurance. This provides coverage that may not be covered by performance bonds. Also, SDI has a greater level of flexibility and usually has lower premium costs. This can go a long way to control the overall cost of the tenant improvement project.

The proper definition of the project’s priority

Before any tenant improvement project is carried out, it’s important to define the priorities of the project and know the scope of work. Know exactly what is required and what type of outcome is needed after the project’s completion. What is the improvement process going to achieve? Which areas of improvement should have more emphasis? Are there areas that should be more prioritized than others? These are the issues to address before any TI process should be carried out.

Early planning is the key

Failure of most projects is not really at the end but from the beginning. If the wrong strategies are adopted or adequate planning is not made, the project is bound to fail. When dealing with a tenant improvement project, proper planning will be vital towards successful project completion.

Establishing a robust and reasonable budget from the beginning and ensuring that a design is used in the budget are vital steps to take. Instead of trying to do a lot of things in a short period of time, it’s important to have a realistic schedule for the office TI project.

The three major criteria for determining the true success of a tenant improvement project are quality, cost, and time of the proposed project. If these three are projected right, the success of the project is guaranteed. They should be considered from the beginning and well balanced. Also, placing more emphasis on the project’s priorities and properly communicating these priorities are very important components of controlling TI project costs.

Conclusion

Immediate failure of office tenant improvement projects could be attributed to a lack of collaborative efforts between the client and owner in anticipating what should be the result of the project. If there is no clear planning on the type of improvements that are needed and at what cost it will take, the chance of having a successful office TI project will be very slim. The priority of the project has to be properly defined and communicated effectively to the client for effective execution. Overall, due diligence has to be followed with proper time scheduling to prevent unnecessary costs born out of inflexible project scheduling.


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An office tenant improvement job I was brought on was delayed due to inconsistencies of owner collaborative efforts just like you said Lissa in your conclusion. The areas that I have seen where the Owners and General Contractor’s planning conflict are in the building lobbies, elevator lobbies, security rooms and open-concept spaces.

OpenSpace and Clearsight helped us a lot with our timing for framing around ornamental light fixtures for our ceilings and working around subcontractors in the lobbies and security rooms. Clearsight helped give us estimates of percent complete work that had to be altered due to owner changes in light fixtures, ceiling details, and lobby areas.

@lissa Do you see OpenSpace as a tool to reduce the likelihood of subcontractor default?

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