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Build-out

Definitions of Build-out

  • The build-out is the construction of interior improvements to a building's space for the tenant or occupant. The build-out constitutes the tenant improvements or leasehold improvements when performed for a tenant.
    The tenant is anxiously awaiting completion of the build-out of their new space so they can move in and get their business up and running.
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Build-Out | Commercial Real Estate Leasing and Tenant Improvements

What Is A Build-Out?

The build-out is the physical improvements made to a commercial space in order to make the space usable and functional for the occupant or tenant. The physical improvements constructed including the walls, ceilings, doors, etc. are all part of the build-out. Buildout is an alternative spelling that can also be seen in practice.

The build-out, or physical improvements, are also known as tenant improvements or leasehold improvements when the build-out is done as part of a lease for a tenant.

Why Are Build-Outs Performed For Each Commercial Tenant?

The way previous commercial tenants have designed and used their commercial space rarely corresponds to the needs and preferences of the next tenant. Commercial tenants may have very distinctive approaches to laying out a space. They may also have distinctive aesthetic designs that are part of their company brand and culture. At the very least, the previous build-out may be dated, tired, and in need of a refresh.

For these reasons, when occupants lease a new space, the tenant generally has the option of having the space custom built to their specific requirements. However, this isn't always the case. Tenants may find a space where the existing built-out suits them. In these cases, they can save time and money by avoiding the build-out process and/or negotiate better lease terms in exchange for not taking the tenant improvement allowance.


How Do Build-Outs Get Built?

As a construction project, build-outs are designed by an architect. Many architects specialize in the design of interior commercial space. The build out will be physically built by construction contractors. If the commercial space was previously occupied, the previous improvements will be demolished and removed.

The architect and contractor will have to ensure the build-out is designed and constructed in compliance with local building codes and restrictions. They will also have to coordinate the construction project with the landlord, building engineer and tenant.


Who Pays For Build-Outs?

Whether the landlord or tenant bears the cost of the build-out depends on the trends in the market, the type of space, and the negotiating skills of the parties involved. The cost of build outs may be paid by the landlord, tenant or combination of both.

When a commercial space is offered for lease, it will often indicate the amount of money the landlord will contribute toward improvements for the tenant. This amount of money is known as a tenant improvement allowance. They are generally expressed as a dollar amount per square foot.

The tenant improvement allowances are negotiated as part of a commercial lease. A commercial real estate agent can advise on what the terms and amount of the allowance should be.


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