CRE glossary
Tenant improvements (TI / TIA)
Tenant improvements (TI), also called tenant improvement allowance (TIA), is the dollar amount the landlord contributes toward building out the space for the tenant. TI is typically expressed as $/SF and ranges from $30/SF for spec-suite refreshes to $150+/SF for full ground-up office buildouts.
TI is one of the four economic levers in any office lease alongside base rent, free rent, and term length. Landlords use TI to win competitive deals because it doesn't change the base-rent comp number that gets reported to the market. From the tenant's side, a $20/SF TI bump on a 10,000 SF deal is $200,000, the same as 9 months of free rent at $25/SF.
TI deals come in three structures. (1) Landlord-built turnkey: landlord delivers the space finished to a defined spec; cleanest but locks the design. (2) Allowance with landlord oversight: tenant designs, landlord pays up to the allowance, anything over the allowance is amortized into rent or paid by the tenant. (3) Pure cash allowance: landlord wires the money once construction is documented; rare but most flexible.
Watch the unspent-TI clause. Many leases say unspent TI 'reverts to the landlord', meaning if the tenant builds out for less, the landlord keeps the difference. Negotiate to repurpose unspent TI as free rent or cash credit. On a $80/SF allowance for a $65/SF buildout, the difference is real money.
TI value over the term
TI value = TI ($/SF) × premises SF
Example
- Premises
- 12,500 SF
- TI allowance
- $80/SF
- Total TI
- $1,000,000
- Effective rent reduction (10y term, 8% disc)
- ~$8.50/SF/yr
Broker perspective
When evaluating competing landlords' TI offers, normalize them. A $75/SF turnkey from Landlord A may look smaller than a $90/SF allowance from Landlord B, but the turnkey often includes contingency, GC fees, and design management that the allowance shifts to the tenant. Convert both to net-cash-to-tenant before comparing.
Frequently asked
People also ask
Is TI taxable to the tenant?
Generally no when it's a true reimbursement of qualified leasehold improvements. Talk to a CRE-focused tax accountant before signing, tenant-paid items the landlord later 'reimburses' can become a different story.
What happens to unspent TI?
Default lease language has it revert to the landlord. Negotiate to convert unspent allowance to free rent, cash, or a rent credit. This is one of the most overlooked savings opportunities in lease negotiation.
Does TI include soft costs?
Sometimes. By default, hard construction costs are covered. Soft costs (architecture, permits, GC fee, FF&E, low-voltage cabling) are negotiable line items, push to include.
How is TI different from a build-out?
TI is the money. Build-out is the work. The landlord may deliver a build-out (turnkey) or pay a TI allowance for the tenant to manage the build-out. Same outcome, different control structure.
Related terms
Letter of intent (LOI)
A non-binding outline of the major business terms, rent, term, TI, options, that becomes the basis for the binding lease.
Free rent (abated rent)
A period at the start of the term where the tenant pays no base rent, used to offset move-in costs and competitive pricing.
Base rent
The headline rent before pass-through expenses, usually quoted in $/SF/year and the starting point for every comp.
Build-out (fit-out)
The construction work to customize a leased space for the tenant, paid via TI allowance, tenant cash, or both.
See tenant improvements (ti / tia) extracted from a real lease.
Drop a 60-page lease, get a 38-field abstract in 90 seconds, every value cited back to the source page.