A “prebuild” or prebuilt space is a space that a landlord has renovated and built out in order to make it more appealing and readily available to a prospective tenant.

Typically vacant spaces will remain in the condition the previous tenant leaves them. Once ownership receives an offer, the tenant will either request work to be done to the space, ask for free rent or a cash allowance (or “TI”) to do their own work, or move into the space as-is.

The advantages of the traditional approach is that ownership can build the space exactly how the tenant wants it and ownership doesn’t spend any money in the meantime. The advantage to the tenant is they can get the space exactly how they want it.

There are a couple reasons an owner would prebuild a space:

• So it shows better. It’s one thing to tell a tenant how a space could look, it’s another thing to update it with high end finishes and eliminate the need for anyone to use their imagination (or architect).
• To cater to tenants needing immediate occupancy. If a tenant needs space in two weeks, they are not going to be able to wait for an owner to do a full build-out. This gives a prebuilt space a competitive advantage for tenants that need space asap (who often have a stronger sense of urgency and are more motivated to make a deal)
• To make efficient use of time. While a landlord’s space is vacant and they are waiting for a tenant, if they use that time to renovate the space, they might not actually be “losing” that time, if it reduces the time it takes from lease signing to tenant occupancy.
• Achieve higher rents. Landlords can typically get higher rents on prebuilt spaces since they look better (wouldn’t you pay more for mint, restored car than an old broken car of the same year that the seller promises to fix up?)
• Rent the space faster. Using the same car example, wouldn’t the restored car sell a lot quicker?

Reasons not to prebuild a space:

• Save on out of pocket expense. Even though a landlord might (or in some cases probably will) need to build the space for a tenant later, they are less motivated to spend the money without anyone willing to pay rent as soon as it’s completed.
• What if the incoming tenant is not that picky and doesn’t need high end finishes?
• Less flexibility. What if the incoming tenant wants a different layout than you spent money building? If you just built 6 glass offices and the incoming tenant wants a wide open space for their trading desks, you are either turning away a tenant or wasting all the money you spent building those offices. A less extreme example would be if you built 6 offices and the tenant only wanted 4.