Practice owners approaching lease renewal often ask: “Can I get funding from my landlord to update my space?” The answer is yes – and typically far more than most doctors realize.
This funding, known as tenant improvement (TI) allowance, is negotiated by your broker during renewals to cover upgrades to your existing space. Understanding the mechanics, timing, and market factors that influence these negotiations can mean the difference between a basic renewal and securing substantial capital for practice improvements.
Real Results from Real Renewals
Last fall, a physician approached us with her lease expiring in approximately one year – ideal timing for renewal negotiations. Her practice was thriving in its current location, but the office itself needed modernization.
Through strategic renewal negotiations, we secured over $75,000 in TI allowance. This substantial funding allowed her to:
- Replace outdated flooring throughout the office
- Install new cabinetry
- Repaint the entire space
- Revitalize the practice without relocating
Similarly, we’re currently finalizing a renewal for a doctor who’s been in her grocery-anchored location north of Austin for 18 years. She wants to extend her lease for another decade but needs to replace worn flooring. We’ve negotiated approximately $33,000 in TI allowance to fund these updates.
Understanding TI Allowance Fundamentals
What Qualifies for TI Funding
Landlords typically approve TI allowances for:
- Flooring replacement (carpet, luxury vinyl, medical-grade materials)
- Paint and wall treatments
- Cabinetry and built-in storage solutions
- Lighting upgrades
- HVAC improvements for patient comfort
- ADA compliance modifications
- Basic plumbing updates for exam rooms
Factors That Determine TI Amount
Your TI allowance depends on several variables:
- Lease term length: Longer commitments justify higher allowances
- Square footage: Allowances typically range from $15-50 per square foot
- Property type and age: Older buildings often require higher allowances
- Tenant history: Established tenants with strong payment records have leverage
- Local competition: Market conditions affect landlord willingness to invest
How Local Residential Real Estate Markets Impact Commercial Lease Negotiations
The residential real estate market in your area creates ripple effects that directly influence your commercial lease renewal negotiations and TI allowance potential.
Market Appreciation Effects
When residential property values rise in your area, several factors work in your favor:
- Increased property values make landlords more willing to invest in improvements
- Higher residential costs make relocating your practice more expensive, giving you negotiating power
- Growing population from residential development increases patient demand, strengthening your position
- Commercial property values typically follow residential trends, making your location more valuable
Market Downturn Advantages
Economic downturns in residential markets can also benefit healthcare tenants:
- Landlords prioritize tenant retention over seeking new tenants
- Reduced competition from other businesses means less pressure on commercial space
- Healthcare stability becomes more attractive to property owners during uncertain times
Regional Growth Patterns
Areas experiencing residential growth often see:
- New medical facilities entering the market, increasing competition for established locations
- Infrastructure improvements that benefit your practice accessibility
- Demographic shifts that may require practice modifications funded through TI allowances
The Broker Advantage in Renewal Negotiations
In both cases, our approach included:
- Drafting a renewal Letter of Intent with strategic baseline terms
- Making calculated TI allowance requests based on market research and property specifics
- Handling all landlord negotiations directly – our clients never had to engage
- Guiding clients through signing renewal agreements that included significant landlord-funded improvements
Is Your Practice Ready for a Strategic Renewal?
While every negotiation differs, you’re in an excellent position to pursue TI allowance if:
- Your practice is successful in its current location
- You have less than two years remaining on your lease
- Your space needs updating or reconfiguration
A healthcare-specialized broker can help you leverage your position as an established tenant to secure the funding needed to modernize your practice without the disruption and expense of relocation. The key is beginning conversations early, understanding your local market dynamics, and approaching negotiations with professional expertise that maximizes your TI allowance potential.
The physicians who secured $75,000 and $33,000 respectively didn’t receive these allowances by accident – they resulted from strategic timing, professional representation, and understanding how to position their practice value within current market conditions.
Ready to maximize your renewal opportunity? Contact Practice Real Estate Group today for a consultation on your upcoming lease renewal.
