Who Does the Build-Out of Industrial Space? Tenant or Landlord?
Industrial buildings are generally standard: there’s the core/shell, which is essentially the blank box that is delivered to the business, plus office and loading areas. Typically, when a warehouse or distribution center is turned over to the tenant. Depending on the type of business, it is then up to the tenant to build-out the space to meet the specific needs of their business.
However, it doesn’t always have to be that way. If your business has specific requirements, these can be negotiated with the landlord. Instances where further build-out might be required include: needing more office space, needing temperature-controlled, refrigerated space, or heavy power.
Not all Industrial Landlords are able to do the build-out. However, there is enough experienced and solid Landlords willing to do the work and sometimes pay for the build-out of this space; all based on credit and specification from tenant. This considered a “turn-key” solution for the tenant. In this article, we explore the build-outs of warehouse space – and how to negotiate a more turn-key space for your business.
Instances where further build-out might be required include: needing more office space, needing temperature-controlled, refrigerated space, or heavy power.
The specific terms of who is responsible for the build-out and the extent of that build-out are typically outlined in the lease, and it can vary from one lease to another. Here are the two most common scenarios:
1. Landlord Build-Out:
In some cases, the landlord may offer a "vanilla shell" or "warm shell" space, which is essentially a bare warehouse space with basic infrastructure (walls, roofing, and basic utilities) but no interior finishing or improvements.
The landlord may then be responsible for completing the build-out, which may include adding office spaces, restrooms, HVAC systems, lighting, refrigeration, and other improvements to meet the tenant's specifications.
The costs associated with the build-out are typically borne by the landlord, but these costs may be factored into the overall rent or lease rate.
If the Landlord is responsible for the build-out, the costs associated with the build-out are typically borne by the landlord, but these costs may be factored into the overall rent or lease rate.
2. Tenant Build-Out:
In other scenarios, the tenant may lease the warehouse space in an "as-is" condition, meaning it's up to the tenant to complete any necessary build-out or improvements to make the space suitable for their needs.
The tenant is responsible for both the cost and the management of the build-out. This allows the tenant to customize the space to their specific requirements.
Tenant build-out costs are often considered part of the tenant's initial expenses, separate from the lease itself.
If the Tenant is responsible for the build-out, costs of the build-out are often considered part of the tenant's initial expenses, separate from the lease itself.
It's essential for both landlords and tenants to clearly define the responsibilities for build-out in the lease agreement, including timelines, costs, and any specific requirements or restrictions. Negotiating these terms upfront helps avoid misunderstandings and disputes down the road.
Additionally, some leases may involve a combination of landlord and tenant responsibilities for build-out, where the landlord provides certain infrastructure improvements, and the tenant completes additional customizations to suit their operational needs. This is usually outlined in detail in the lease agreement.
How much does it cost to build-out warehouse space?
The cost to build-out a warehouse space can vary widely depending on several factors, including the size and condition of the space, the level of customization required, location, local construction costs, and the specific needs of the tenant. Therefore, it's challenging to provide a precise average cost without specific details.
The cost of building out a warehouse space can range from a few dollars per square foot for minor improvements to well over $100 per square foot for highly customized, high-end build-outs.
It's important to work with a qualified contractor or construction professional to obtain accurate cost estimates based on your specific requirements. Additionally, involving an architect or space planner can help you optimize the layout and design, potentially saving costs in the long run.
Ultimately, the cost of building out a warehouse space can range from a few dollars per square foot for minor improvements to well over $100 per square foot for highly customized, high-end build-outs. Careful planning, budgeting, and obtaining multiple quotes can help you manage costs effectively.
Have questions about building out a space or looking to more space? Our Team can help you explore a range of options, from basic core/shells to turn-key properties ready for your occupancy.
About the ComReal Miami Industrial Team: The ComReal Miami Industrial Team has been assisting companies with their South Florida real estate needs for over 30 years. The industrial team specializes in the sales and leasing of industrial properties. Visit Warehouses Market and/or call 786-433-2380 for more information.
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