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As a commercial tenant, working with an architect can be a massive benefit to you and your business. They can help you design and customize the space that you’re leasing so that it perfectly meets your business needs. However, the process of screening, hiring, and paying architects for their work can be confusing.
In this article, we’re going to go over some of the following questions:
The timing of when you’re going to hire an architect is an important step in the process. Traditionally, architects are hired at two times: when you’re first moving into a new commercial lease, or when you already have a lease and would like to make improvements. We’re going to go into both scenarios below.
If you have the available capital, it can be a good idea to hire an architect before you actually sign a lease - at the commercial lease letter of intent stage. Having an architect advise you as you assess potential sites for your business can provide valuable insights into the feasibility of moving into a certain location.
Say, for example, you’re looking for a new office space for your businesses, and you have some specific criteria—such as a boardroom— that you want to be present in your office. None of the offices that you’ve viewed, however, have boardrooms, so you’re going to need to build one.
Now, you can always ask the landlord whether or not you could build a boardroom in their location. It can be a little hard to trust their advice, however, given that landlords have an incentive to keep their buildings occupied, and therefore may bend the truth a little to convince you to sign a lease with them. Having an architect on hand can give you independent, third-party advice (even for a small example like this - not all spaces need to be a plain vanilla shell condition).
(Note: some landlords may suggest an architect to you. Be slightly skeptical of this advice, for the same reason as above).
If you have an architect assist you in choosing a space, they will likely perform what is known as a space plan or a test fit. This means that the architect will examine the potential lease space to see if it would be feasible for your desired construction to be carried out.
Note: Space plans or test fits usually cost about $.05-$.15 per square foot, so if you’re assessing tens of potential offices, this cost can become prohibitive. A better idea is to narrow down your range of choices to a shortlist of 3-5 potentials and have the architects assess these.
So, if you’re moving from one leased space to another and you have specific improvements that you know you’re going to want to make to your new location, hiring an architect can be a great way to see if these improvements will be feasible and eventually you will need one to get your certificate of occupancy.
Not all improvements are made when you’re first moving into a space. Sometimes your location can become out of date, or your business might change in a way that demands modifications be made to the space you operate in (most often to in the case of an expansion or renewal). In this case, you may need to hire an architect to make tenant improvements.
In this instance, the architect asses your current space and then work with you to judge the feasibility of the improvements you want to make. They may have suggestions for you, and they can also be useful for recommending contractors or trade workers once you move to the construction phase.
We’ve already covered a little bit of this above, but now we’re going to dive deeper into what an architect actually does for your business. In commercial leases, an architect will provide the following services:
As mentioned above, space tests are an assessment done by an architect to see if a certain space is capable of being modified in the way that you want it. Essentially, you tell the architect what your vision is (what you want to build) and the location you want to be assessed (where you’re thinking of building it). The architect will then assess the space and tell you if this is possible (and sometimes a rough estimate of how much it’s going to cost).
Space tests can be a great idea before you move into a new place. There’s nothing worse than signing a lease only to find out that the changes you thought you were going to make are actually impossible. As mentioned above, space tests cost about $.05-$.15 per square foot to complete.
The design plan is the execution of what you want built. It’s the architect’s plan for how to modify a space to fit your wishes. It will include dimensions, materials, drafting schedules, and structural elements. It’s a blueprint that will be followed by the construction workers.
Design plans are where the majority of an architect’s work is done. It’s often an iterative process, where they will present you with a first draft and you’ll suggest any changes you want. The architect will then make these changes and give you a second, third, and fourth draft until you’re satisfied with the result.
Design plans can vary in cost based on the complexity of the projects and the number of redesigns you ask for, but a (very general) rule of thumb is $3-$5 per square foot.
A pricing note is an architect’s estimate of how much the project will cost to carry out in terms of construction fees, along with any changes that will need to be made to the mechanical, electrical, and plumbing (MEP) systems. They’ll include material and labour costs, and can give you a good overview of how much you’re going to have to pay to enact the changes you want.
Pricing Notes usually cost about $0.50 per square foot.
Now we have some idea about what an architect actually does and what they will be charging you for, so it’s time to dive a little deeper into cost.
So, how much does an architect cost for a commercial lease project? Costs will vary based on a variety of factors, but a good rule of thumb is $6 per square foot, or 6-8% of your total projected construction costs.
Giving a hard estimate of how much an architect is going to cost is extremely difficult, because the price is going to vary wildly based on the size of the project you’re doing. Instead, you can use the above numbers as a very rough estimate as to how much you’ll have to pay for an architect’s services.
Of course, as a business, whenever you spend money you need to enter it into your bookkeeping records. Accounting for architect fees can be a little tricky, but costs incurred from architectural services are usually capitalized as an asset, rather than being expensed.
According to the GAAP Statement of Financial Accounting Standards:
“Project costs clearly associated with the acquisition, development, and construction of a real estate project shall be capitalized as costs of that project” (Section No. 67, Paragraph 7)
The reason for this is two-fold:
So, once you have to capitalize fees, the question becomes how long you depreciate them over. Like any capital asset, the expense should be depreciated over its useful life. For construction fees in commercial leases, this can mean two things:
Paying an extra 6-8% on top of your construction costs can be a lot, especially for smaller businesses. On the other hand, you don’t want to save too much money on your architect, because if they do their job poorly it can have long-lasting consequences for your businesses’ commercial lease.
So, without ripping anybody off or hiring the cheapest architect you can find, here are some strategies to help you save a little bit of money:
Take your time picking an architect: If you’re not in a rush, it never hurts to shop around a little and see what your options are. Visit different architecture firms, create an RFP, and get a few quotes from different firms to see what your options are. You’d be surprised at how quickly some firms will lower their prices to prevent you going to one of their competitors.
Ask your landlord about your Tenant Improvement Allowance or Tenant Inducements: Sometimes, your landlord will be willing to subsidize some or all of the construction costs in a commercial lease improvement (remember, the landlord also benefits if their space gets modernized). Using these options can reduce the amount you’ll have to pay for the renovations. There are two common subsidy types:
Monitor the work: While you don’t want to be overbearing, it can definitely be in your best interest to maintain good communication with your architect. This will make sure they have a good idea of what you want from the project, so they’re not committing time towards dead-end tasks that you’ll end up getting billed for later on.
That’s it for our guide on architects in commercial lease! A quick summary of everything we’ve gone over: