Cost of office installations: what to keep in mind

Office installation

Landlords normally provide incoming office Tenants, with a Tenant Installation Allowance (TIA) to fit their new offices.  The TIA may only be used for fixtures and fittings inside the office (drywalling, painting, carpeting, air-conditioning, electrical fit-out, etc.).  Items such as IT infrastructure, office automation, furniture and signage are therefore excluded.  There are a couple of ways to calculate the TIA in an existing building (new buildings normally work on a R/sqm as part of the construction budget).  The two most widely used methods is to (a) work on a negotiated R/sqm amount, or (b) work on one month’s office rental (parking excluded) per year of the lease.  So, if your office rental is R10 000 pm plus VAT and you sign a 3-year lease, then the Landlord will make available a maximum amount of R30 000 plus VAT as a TIA.  Note that, should the proven office installation cost be less than R30 000 plus VAT, the Landlord will, in most cases, only make available the amount proved by the Tenant to be used for internal upgrades.

The challenge facing office Tenants these days is that the second method links the TIA to the rental paid.  I am sure that you are aware that we have not experienced much office rental growth in certain office nodes in South Africa.  Construction costs, on the other hand, have increased over the last number of years.  The result is that the office Tenant can do less and less with the TIA due to the escalating building cost while office rentals remain fairly flat (over a 5-10 year period).  Landlords also require Tenants to approve their internal layout plans with the local authority which will add professional fees to the final budget costing.  A number of office nodes like the Tygervalley area, for instance, are experiencing low office vacancies and we expect strong support for office rental rates.  This is, however, linked to economic growth which is depressed at the moment.

In closing, we normally advise our clients, where possible, to avail themselves of the total office installation cost before putting hand to paper.  It is worth while engaging a seasoned interior designer and contractor to point out pitfalls and possible high cost items.

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