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You are here: Home / Blog / Renting in Silicon Valley: The Cut & Dry of Tenant Improvements

Renting in Silicon Valley: The Cut & Dry of Tenant Improvements

October 27, 2016 By Silicon X Construction

Silicon Valley and the Central Valley make up a particularly robust swatch of Northern California wherein lies a broiling epicenter of creativity and innovation. The amazing outbreak of technology start-ups and small businesses rising from this cauldron of productivity has also spurred growth from the businesses that feed these newborn fledglings. From legal services, to in-house advising, to production and manufacturing, start-ups have become a main source of fresh revenue for various industries.

One of the fastest growing of these industries is the rental market. Not just any rental market either. New small businesses and tech start-ups have come to value the décolletage of their workspace following trends set forth by leviathans such as Google and Facebook. These conglomerates transformed entire buildings into innovation processing centers provide by incorporating work-life and home-life via open-office layouts, outdoor and communal work areas, inducing natural light, and indulging in amenities such as laundry services, luxury cafeteria’s, and gyms.

That’s why the Bay Area, from Silicon Valley to Santa Clara and San Jose, provides particularly unique opportunities for renters to improve rental properties.

Tenant Improvement 101

1) Tenant Improvement Allowance

Business rentals come with unique caveats that differ from other types. These differences rely heavily on special needs that business tenants face. Generally, a businesses success hinges upon their identifying personality and service. Therefore, businesses seek to retrofit a workspace in accordance with the marketing schema that represents their goals, mission, attitude, and personality.

This where a tenant improvement allowance proves beneficial in the rental arena. Per 42 Floors, a tenant improvement allowance refers to “the amount a landlord is willing to spend so that the tenant can retrofit or renovate the office space. It is usually expressed in a per-square-foot or total dollar sum. This amount is decided upon during lease negotiations.”

During a tenant improvement allowance negotiation, it’s important for the tenant to retain as much control over the improvement decisions as possible. While the landlord may be willing to spend a certain amount on changers, they can also request control over approval and decision-making.

2) Estimate the Costs

When it comes to improving a rental space, budget is your main determinate. Dream big, but remember dreams come with caps.

Begin by reviewing what is possible within your allotted square footage. If a tenant improvement allowance is negotiated, consider what you would like to achieve in conjunction with your contract limitations. Once physicality is analyzed, begin scaling up or down based upon the budget. In short, before venturing to find a contractor or beginning any DIY projects, ask what are the physical and financial restrictions?

Project cost estimation is an inevitably large part of this analysis. Estimations should include costs to design, permits, professional hires, and construction.

Per Hughes Marino Construction Management, minor remodeling ranges from $15 to $25 per square foot, while major remodeling oftentimes goes as high as $50 per square foot. Keep in mind these estimations don’t include additional decorative upgrades such as carpet installation and painting ($5 – $10/ sf), constructing restrooms or lobbies ($60 – $75/ sf), or designing systems furniture (up to $5K per cubicle station), to name just a few.

The unique style of work life in Silicon Valley and the Central Valley offer very distinctive expectations. The above estimations are for a basic business office. For innovative design and specialty inclusions (such as a cafeteria or a gym or open-work space), cost estimations will continue to rise.

3) Find a Professional

When circuitry is shorted due to bad DIY decisions in a personal home, you call an electrician. In a rental space, you make the dreaded call to the landlord. Unless you have an extensive background in construction, it’s incredibly important to hire professionals.

  • Project Manager

While a project manager is not necessary, they are oftentimes invaluable. For rental improvements, a project manager plays the role of organizational taskmaster.

Per the Project Management Institute, project managers “have a broad and flexible toolkit of techniques, resolving complex, interdependent activities into tasks and sub-tasks that are documented, monitored and controlled. They adapt their approach to the context and constraints of each project, knowing that no ‘one size’ can fit all the variety of projects.”

A PM’s main goal: understand the wants, document the restrictions, organize a timeline, and work with all the stakeholders to meet client satisfaction.

  • Construction Manager

A project manager is optional, but the construction manager is a must have. When working with multiple stakeholders – the renters, the landlords, and even other building tenants effected by the renovations – a construction manager will be the key individual to provide neutral perspective when difficult decisions come about.

The Occupational Outlook Handbook from the Bureau of Labor Statistics states that construction managers “plan, coordinate, budget, and supervise construction projects from start to finish.” While this is true, their job encompasses much more. Construction managers also interpret contracts, report on building progress, and oftentimes become chameleon’s to work with architects, engineers, and various other construction specialists.

 

For more information on tenant improvements, feel free to reference the below related articles:

Tenant Improvement Allowance – Negotiating the Best Deals

Tenant Improvements: A Practical Guide to Estimating Project Cost

Bureau of Labor Statistics: Construction Managers

 

SiliconX Construction provides high-quality, reliable, comprehensive real estate services. From Silicon Valley to the Central Valley, we offer a wide range of skills including sales, leasing, property management, development, and syndication. For more information or to speak with a representative directly, feel free to contact us.

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