What Are Tenant/Leasehold Improvements? While commercial rents in the St. Louis area are nowhere near the stratospheric prices common on the coasts, prices here have been climbing in recent years. That trend should be accelerating in the years ahead. RE Journals cited a study in Colliers International that called the Gateway to the West one of its top ten emerging industrial markets to watch. Industry won’t be the only driver of the economy in years ahead; it’s safe to say that the ripples from that expansion will touch the housing and commercial real estate markets as well. For commercial lessors, that means it’s time for a primer on leasehold improvements, also known as tenant improvements — a specialty, as it happens, of G. S. & S. Construction.
What Tenant Improvements Are
Leasehold improvements are the alterations a building owner or lessor makes to a space pursuant to a commercial lease agreement. Those alterations are made in order to prepare the space for the tenant’s needs. Those improvements can take a number of different forms, including subdividing a larger space into smaller spaces to accommodate lessees or sub-lessees (as with a co-working or virtual office space, for instance). They may also include improvements to lighting, floors, walls, and ceilings. These improvements have a service life that usually coincides with the lease term; once the lease is up, the space may be reconfigured for a new tenant, or the existing tenant may make further leasehold improvements a condition of lease renewal.
What Tenant Improvements Are Not
There are many more types of building improvements that you may be considering, each of which can give you any number of benefits — among them safety, ADA compliance, and the ability to stay afloat in a fiercely competitive market. As contractors, we do not discourage building improvements for any reason. However, if you’re making these renovations with an eye toward depreciation for tax purposes (about which, more below), you should know that some improvements fall outside that purview. They include, but are not necessarily limited to:
- Building additions and enlargements
- The installation of an escalator or elevator
- Improvements or retrofits of the building’s structural framework
- Structural components in common areas
Tax Implications of Tenant Improvements
First, a disclaimer: we are tenant improvement contractors, not CPAs. With that being said, few business decisions are taken without considering their tax implications, and tenant improvements are no exception. As a rule of thumb, depreciation costs for tenant, retail, and restaurant improvements are covered under depreciation carve-outs in the PATH Act. We strongly suggest speaking to your accountant or tax professional for advice regarding the potential tax benefits of a leasehold improvement.
Finding a Tenant Improvement Contractor in St Louis
Taking advantage of an emerging real estate market doesn’t always mean building to suit. However, it does require some patience, foresight, and a willingness to invest in order to stay competitive while luring in higher-dollar tenants. Tenant improvements are a faster and more cost-effective way to make the most of your space, keeping your tenants happy in the process. To schedule a consultation on a range of commercial construction services, contact G. S. & S. Construction today.