Negotiating a TI Allowance That Actually Covers the Work

Tenant improvement allowances fund the work needed to convert a raw or previous tenant space into what the new tenant needs. But TI allowances quoted in Macomb County commercial leases often fall short of actual buildout costs, leaving tenants unexpectedly out of pocket. Negotiating a TI allowance that actually covers the work starts with realistic cost estimates and continues through specific lease language protecting the tenant.

What TI typically costs in Macomb County. Basic office buildout with standard finishes runs $35 to $70 per square foot depending on scope. Medical or dental buildout with plumbing, specialized systems, and higher finish levels runs $95 to $220 per square foot. Restaurant buildout with kitchen infrastructure runs $140 to $380 per square foot. Retail buildout with storefront work runs $45 to $135 per square foot. Warehouse buildout with dock modifications and office components runs $18 to $55 per square foot. These ranges have risen 20 to 40 percent since 2020 due to labor and material cost increases.

Standard TI allowances landlords offer. Standard Macomb County office landlords typically offer $8 to $25 per square foot for existing space buildout on new leases. New construction or major reconfiguration can produce higher allowances. Landlords amortize TI cost into rent over the lease term, so higher TI produces higher effective rent even if base rent stays the same. The tradeoff between TI dollars and rent rate sits at the center of most lease negotiations.

How to estimate actual project cost. Get preliminary pricing from a commercial general contractor familiar with the specific building and Michigan labor market. Include architectural and engineering fees at 8 to 12 percent of construction cost. Include permitting, inspection, and contingency at 5 to 10 percent. Include tenant specific equipment, furniture, and technology beyond base building. The total number is what the tenant will actually spend, and TI negotiation should target covering the reasonable portion of that number.

What the lease should specify about TI. Total dollar amount available for TI. Timing of when landlord disburses TI to tenant or contractor. Whether TI covers architectural, engineering, and permits or only construction. Whether unused TI reverts to landlord or converts to rent credit. Approval process for plans and contractor selection. Payment mechanics through progress draws or lump sum on completion.

The disbursement mechanics matter. Some leases pay TI through progress draws matching completion milestones, which supports the contractor cash flow. Some leases pay TI only at project completion, requiring the tenant to front the cost and then wait for reimbursement. Tenants without cash to float should negotiate progress draw structures.

Landlord work versus tenant work. In some structures, the landlord manages construction and delivers a turnkey space. In others, the tenant manages construction using the TI allowance. Turnkey shifts cost overrun risk to the landlord but often produces less tenant control over choices. Tenant managed construction gives control but shifts overrun risk to the tenant. Neither is universally better; the fit depends on tenant sophistication and time.

Base building conditions. TI negotiations should clarify what condition the space arrives in before TI work begins. Warm shell versus cold shell versus second generation space with existing improvements all mean different starting conditions. Base building systems including HVAC, electrical, and plumbing capacity should meet tenant needs before TI work begins.

Cost escalation and change orders. TI budgets get eaten by change orders during construction, typically 5 to 15 percent of base contract value. Building contingency into the TI request or into tenant reserve prevents mid project surprises. Documenting who bears cost of changes, whether tenant initiated or discovered condition, matters for dispute avoidance.

Amortization tradeoff. A landlord funding $35 per foot of TI on a 5 year 5,000 square foot lease advances $175,000 that gets recovered through rent. At market interest rates, this adds roughly $3.50 to $5.50 per foot to effective rent. Tenants choosing between higher TI at higher rent versus lower TI at lower rent should model the full effective cost.

TDG Commercial, known as top commercial real estate agent in Macomb County, negotiates TI allowances that reflect actual buildout costs for tenants across the region.