About the Tenant Improvement Allowance Calculator
A tenant improvement (TI) allowance is money a commercial landlord contributes toward building out a space for a new tenant — walls, flooring, lighting, HVAC changes, restrooms, finishes and the like. It is usually quoted per square foot, such as $45 per rentable square foot, and the landlord recovers it through the rent over the lease term. If the build-out costs more than the allowance, the tenant pays the difference up front or asks the landlord to fund it and add it to the rent.
Enter the size of the space, the allowance per square foot, your estimated build-out cost per square foot, the lease term, the interest rate used to amortize improvements, and the base rent. The calculator shows the total allowance, the total build-out cost, any shortfall or unused allowance, and — if you amortize the shortfall into rent — the monthly payment, the added rent per square foot and the resulting effective rent. It also shows how much of the base rent effectively repays the landlord’s allowance.
It helps tenants, office and retail brokers, and landlords compare lease proposals with different allowances and rents. Construction estimates vary widely by market and finish level, so use a contractor’s quote where you can.
With the default inputs, the total ti allowance is $225,000.00. Change any value above to recalculate instantly.
How to use the tenant improvement allowance calculator
- 1Enter the size of the space in square feet.
- 2Enter the landlord’s TI allowance per square foot from the proposal.
- 3Enter your estimated build-out cost per square foot.
- 4Enter the lease term, amortization rate and base rent.
- 5Choose whether to amortize any shortfall into rent and review the effective rent.
Formula and method
The total allowance is the allowance per square foot times the size of the space, and the build-out cost is the cost per square foot times the same area. Any cost above the allowance is the tenant’s shortfall; any allowance above the cost is unused.
If the landlord funds the shortfall and recovers it through rent, the calculator amortizes it like a loan over the lease term with monthly payments, where S is the shortfall, r the monthly rate (annual rate ÷ 12) and n the number of months. Dividing the annual payment by the square footage gives the added rent per square foot. The same formula applied to the allowance itself shows how much of the base rent is effectively repaying the landlord’s TI investment.
- S
- Shortfall amortized into rent
- r
- Monthly interest rate (annual rate ÷ 12)
- n
- Lease term in months
- psf
- Per square foot per year
Worked examples
5,000 sq ft office, $45 allowance, $70 build-out
The allowance is 5,000 × $45 = $225,000 against a $350,000 build-out, leaving a $125,000 shortfall. Amortized over 7 years at 8%, that costs $1,948.28 a month — $4.68 per sq ft per year — taking effective rent from $32.00 to $36.68. About $8.42 of the base rent repays the landlord’s own allowance.
Allowance larger than the build-out
A $60 allowance on 12,000 sq ft provides $720,000, more than the $660,000 build-out, so $60,000 goes unused and rent stays at $38. Roughly $8.36 per sq ft of that rent repays the allowance over 10 years at 7%.
As-is space with no allowance
With no allowance, the whole $100,000 build-out falls on the tenant. Amortized over 5 years at 9% it costs $2,075.84 a month, or $9.96 per sq ft per year, so the $24 space effectively costs $33.96.
Frequently asked questions
What is a tenant improvement allowance?+
A TI allowance is a sum a landlord agrees to pay toward customizing a commercial space for a tenant, usually expressed per square foot. It covers construction such as walls, flooring, lighting and finishes, and the landlord recovers it through the rent over the lease.
How much is a typical TI allowance?+
Allowances vary widely by market, property class, lease length and the space’s condition. Second-generation space needing light work may get a small allowance, while raw or shell space on a long lease can get a much larger one. Longer leases and stronger tenants generally command bigger allowances.
What happens if build-out costs exceed the TI allowance?+
The tenant pays the difference, either in cash during construction or by having the landlord fund it and add an amortized amount to the rent. Amortizing preserves cash but costs interest over the lease term.
Can I use unused TI allowance for rent?+
Only if the lease says so. Some leases let tenants apply leftover allowance to rent credits, cabling, furniture or moving costs, while others forfeit any unused amount. Negotiate this before signing.
Is a TI allowance taxable to the tenant?+
Tax treatment depends on who owns the improvements and how the lease is structured. In the US, some allowances for qualified retail leases can be excluded from tenant income under specific rules, but treatment varies, so confirm with a tax adviser.
Results are estimates for educational purposes and are not financial advice. Rates, fees and terms vary — confirm with your lender or a licensed advisor before making decisions.