When it comes to construction and Tenant Improvements, you may hear people refer to hard costs and soft costs. Since a Tenant Improvement Allowance usually only applies to hard costs, it’s important to know the difference between the two.
Hard costs refer to the costs related to the physical construction of the building. Typically, they are tangible in nature and can be forecasted with accurate pre-construction numbers.
While Hard Costs are easier to estimate than soft costs, the price of materials, region, and labor supply all play a part in the final numbers.
Soft costs, on the other hand, are any costs that aren’t directly related to construction costs. These costs are typically tied to less tangible things, such as plans, permits, or contracts.
Think of it this way: If the cost is tied to something physical that will remain with the property after the Tenant moves out, chances are it is a hard cost. If it isn’t, it’s probably a soft cost.
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