Negotiating tenant improvements (TIs) is a critical part of any warehouse lease. These negotiations often determine how functional the space will be for the tenant and how much initial investment is required to tailor the facility. Few issues generate more questions than who pays for specific improvements—especially when it comes to office build-outs and racking systems. It’s worth examining both sides of the negotiation to understand the stakes and best practices.
Office build-out: Who is responsible?
The office build-out portion of a warehouse lease typically covers the installation or renovation of spaces used for administration, logistics, and meeting areas. Generally, landlords may be willing to provide a “turnkey” office suite if the demand for such spaces is high or if it helps fill vacancies quickly. However, in tighter markets or where specialized offices are needed, tenants may foot the bill, either up front or through amortized payments in the lease term.
Clear plans and timelines are essential—both sides should agree, in writing, on the scope and cost before work begins to avoid conflicts later.
On the tenant’s side, negotiating for an allowance or “TI package” is common. Tenants may push for the landlord to provide a set dollar amount per square foot, which can be used toward construction expenses. Anything beyond this allowance usually becomes the tenant’s responsibility, but savvy negotiation can often increase this figure or get the landlord to cover soft costs like design and permitting.
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Racking systems: Landlord or tenant expense?
Racking is a trickier subject because it is usually considered a tenant-specific improvement. Most landlords prefer not to pay for racking since it is tailored to the tenant’s business and is often removed at lease end. As a result, tenants should expect to budget for racking, though some landlords will finance or co-invest as an incentive for a long-term commitment.
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That said, if the market favors tenants or if the landlord is seeking to boost the building’s versatility, a contribution toward generic racking—or even leaving existing racking in place—might be negotiable. Always clarify who owns the racking after the lease concludes to avoid complications when moving out. Full transparency during negotiation can make the outcome more favorable for both parties.
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