Signing a commercial lease is only the beginning. Before a business can move into a new space, the walls may need to be reconfigured, electrical or HVAC systems upgraded, permits approved, and inspections completed. That work falls under what is commonly called tenant improvement, or TI construction.
The scale of that work can vary considerably. The U.S. Energy Information Administration estimates that the country had about 5.9 million commercial buildings and 96.4 billion square feet of commercial floorspace in 2018, covering everything from offices and retail spaces to restaurants, health care facilities, and warehouses.
Each type of space has different requirements, which is one reason a tenant improvement project can look very different from one business to another. Understanding the steps between signing the lease and opening the doors helps business owners plan for the work ahead.
What Is Commercial Tenant Improvement Construction?
Tenant improvement construction refers to changes made to an existing commercial space so it works for a particular tenant. That might mean moving walls, adding offices, upgrading lighting, changing plumbing, replacing finishes, or modifying HVAC systems.
The starting point isn’t always the same. One business may move into a relatively finished space that only needs a few changes. Another may take over a shell space that requires substantial interior construction before it can be occupied. A third may inherit an older build-out that needs to be partially demolished and brought up to current requirements.
Common examples include a restaurant moving into a former retail space, a medical practice reworking an office suite, or a law firm creating private offices and conference rooms.
Tenant improvement is different from new construction, where the project starts with a new building and its site development. It also differs from adaptive reuse, which involves changing a building from one overall use to another, such as converting a warehouse into offices.
In a TI project, the building is already there. The goal is to make the existing space work for the new tenant.
How Does the Commercial Tenant Improvement Process Work?
There isn’t one exact sequence for every project. Some design, permitting, and construction activities overlap, and the process can change when the team discovers an issue with the existing building. Still, most TI projects move through several basic stages.
Design and space planning.
The tenant, design team, and contractor determine how the space needs to function. This is when they work through the floor plan, finishes, electrical needs, plumbing, HVAC, lighting, and other requirements.
It’s also a good time to look closely at the existing conditions. Older drawings don’t always tell the whole story, and a walkthrough can reveal issues that could affect the design or budget.
Permitting and approvals.
Once the plans are ready, they are submitted to the appropriate city or county for review. Depending on the project, the plans may go through several rounds of comments before approval. Landlord approval may also be required, particularly in a multi-tenant building.
Demolition.
If the existing layout doesn’t work for the new tenant, some of the current build-out may need to come out. That can include walls, ceilings, flooring, plumbing, electrical components, or other finishes.
This is one stage where unexpected conditions sometimes show up. Once walls or ceilings are opened, the contractor may find outdated systems, damaged materials, or other work that wasn’t visible during the initial walkthrough.
Construction and build-out.
After demolition, the new space starts to take shape. Framing, electrical, plumbing, HVAC, and other building systems are coordinated as the work progresses. Drywall, flooring, cabinetry, paint, fixtures, and other finishes follow as the space moves toward completion.
The trades don’t always work in neat, separate stages. Good coordination matters because several parts of the project can depend on one another.
Inspections.
Building officials inspect the work at required stages to make sure it meets applicable codes. Depending on the scope, this may include building, electrical, mechanical, plumbing, fire, and other inspections.
Final approval and occupancy.
Once the required inspections are complete and outstanding items have been addressed, the project can move toward final approval and occupancy. The tenant can then begin preparing the space for normal business operations.
The earlier stages matter because a problem with the plans, permits, or existing building can affect everything that comes after it.
What Permits Are Required for Commercial Tenant Improvements in Arizona?
Permit requirements aren’t identical across Arizona. A project in Phoenix may have different submission requirements or review procedures than one in Scottsdale, Tempe, or another jurisdiction.
The exact permits depend on the scope of work, the existing building, and the proposed use of the space. Common requirements may include:
Building permit.
This generally covers the overall construction work, including interior alterations, wall changes, and other building-related work.
Electrical permit.
This may be required for new circuits, lighting, electrical equipment, or changes to the electrical service.
Mechanical permit.
HVAC modifications, new equipment, ductwork, and related mechanical work may require a separate permit.
Plumbing permit.
If the project involves moving or adding sinks, restrooms, water lines, drains, or other plumbing systems, plumbing work may require its own permit.
Fire and life safety approvals.
Depending on the building and occupancy, the project may involve fire alarms, sprinklers, exits, emergency lighting, or other life-safety requirements.
The proposed use of the space matters, too. A basic office and a fitness studio may occupy similar amounts of square footage, but they don’t necessarily have the same code requirements. A change in occupancy or use can trigger additional requirements involving exits, accessibility, restrooms, fire protection, and other systems.
That’s why it’s important to confirm the requirements for the specific property before construction begins rather than assuming a previous tenant’s build-out will meet the needs of the new business.
What Drives the Cost of a Tenant Improvement Project?
There isn’t a single price for a tenant improvement project. Two spaces with the same square footage can have very different construction budgets.
Several factors typically have the greatest effect on cost:
- Existing building conditions: A recently updated space may need relatively little work, while an older building may require electrical, HVAC, plumbing, accessibility, or other upgrades before the new tenant can move in.
- Demolition: Removing a large existing build-out takes more labor and disposal work than working with a mostly open space.
- Tenant requirements: A basic office with standard flooring, lighting, and partitions is a very different project from a restaurant that needs commercial kitchen infrastructure, specialized ventilation, additional plumbing, and higher-capacity electrical service. Medical and other specialized spaces may have their own equipment and compliance requirements.
- Finish selections: Flooring, cabinetry, countertops, lighting, doors, hardware, and other finishes can range from straightforward and practical to highly customized.
Some costs may not become apparent until construction begins. Opening an existing wall, for example, may reveal an outdated electrical system. A new layout may require HVAC changes, while a change in use may trigger accessibility or fire-protection upgrades.
For that reason, cost-per-square-foot figures are useful as a rough starting point, but they shouldn’t be treated as a final project budget. A reliable estimate requires reviewing the actual space, existing conditions, proposed use, and complete construction scope.
How Is Tenant Improvement Different From New Construction?
The biggest difference is simple: with tenant improvement, the building already exists.
Starting Point
In a ground-up project, the work starts with site development and continues through foundations, structural framing, the building envelope, and interior construction. A TI project skips much of that because the structure, roof, and exterior are already in place.
Project Timeline
That can make a tenant improvement project considerably faster. But there’s a catch: the existing building comes with its own conditions.
A newer space may be relatively straightforward to modify. An older building could have outdated electrical, plumbing, HVAC, or fire-protection systems that need attention before the new tenant can occupy the space. In some cases, those upgrades can make a TI project much more involved than it looked at first.
Cost Differences
The cost structure is different as well. New construction includes site work, foundations, structure, exterior systems, and the rest of the building. Tenant improvement spending is concentrated primarily inside the existing building.
Scope of Work
The two types of work can also overlap. A large TI project may involve substantial demolition and reconstruction, making it feel more like a partial rebuild than a simple interior renovation.
If you’re unsure which approach fits your project, working with a contractor experienced in both new construction and tenant improvement can help clarify the options before the scope is finalized.
What Can Delay a Commercial Tenant Improvement Project?
Not every delay happens because construction itself is moving slowly. Permit review can take longer than expected. Design changes can require revised drawings. A landlord may need additional approvals. Materials may not arrive when originally planned. And an existing condition discovered during demolition can force the team to rethink part of the work.
Inspections can affect the schedule as well. If an inspection identifies something that needs to be corrected, the work may have to stop in that area until the issue is addressed and the required inspection is completed.
Occupied buildings add another layer of coordination. Work may need to be phased around other tenants, shared building systems, customer traffic, or restrictions on when noisy or disruptive work can take place.
This is why a realistic schedule should account for more than the number of days it takes to physically build the space. Design, permitting, material availability, inspections, and coordination all have a place in the timeline.
What Should Business Owners Look for in a Commercial Build-Out Contractor?
The contractor you choose can have a significant effect on how smoothly the project comes together. That doesn’t necessarily mean choosing the contractor with the shortest promised timeline or the lowest initial price.
Look for someone who understands the type of building you’re working with and is willing to explain what the project will actually involve. A few things are especially worth asking about.
Experience with occupied buildings.
If other businesses will remain in the building during construction, ask how the contractor handles phasing, access, noise, dust, shared systems, and other disruptions.
Familiarity with local requirements.
A contractor who regularly works in the project’s jurisdiction is often better prepared for local submission requirements, inspections, and the overall review process. That experience can be especially useful when the project involves a change in use or an older building.
Clear communication.
You should know what’s happening with the schedule, budget, approvals, and unexpected issues. Construction rarely goes exactly according to the first plan, so the ability to communicate changes clearly matters.
A realistic schedule.
Be cautious of timelines that sound too good to be true. A good contractor should be able to explain what the schedule is based on and where potential delays could occur.
Experience with similar projects.
A contractor who has worked on projects similar to yours can often anticipate issues that aren’t obvious to someone seeing the space for the first time. Ask for references or examples of comparable work, particularly if your project involves an occupied building, specialized use, or a challenging existing space.
This is also where commercial construction management can make a difference. Keeping design, permitting, scheduling, subcontractors, inspections, and communication coordinated is a large part of keeping a commercial build-out on track.
Plan Your Tenant Improvement Project Before Construction Begins
The easiest time to address potential problems is before construction begins. A successful tenant improvement project depends on understanding the existing space, confirming the proposed use, identifying permitting requirements, and defining the scope early. Because every building comes with its own conditions, careful planning helps reduce surprises and gives the tenant a clearer picture of the work, schedule, and budget involved.
If you’re planning a tenant improvement project in Arizona, Canyon Building & Design can help coordinate the process from initial planning through completion. Our commercial construction management services support permitting, phasing, subcontractor coordination, and build-out work. Reach out to discuss your space, what you want to change, and what it will take to prepare the project for construction.
