Tenant improvement
Tenant improvement (leietakertilpasning) is the physical rebuilding and technical upgrading of premises carried out to adapt a building to an individual tenant at move-in or contract renewal. The work can range from minor painting and flooring jobs to a full rebuild of the layout, technical systems and facade, and the cost is a key driver of the investment return on commercial property. In Norwegian it is also called "leietakerinvestering", "TI" (tenant improvement) or "fit-out", and it is reported as a separate cost item in cash flow models.
The cost is normally borne by the landlord in Norway, the main difference from many European markets, where the tenant handles internal adaptations itself. The amount can be substantial: for standard office premises, tenant improvement typically costs 4,000-8,000 kr/m² for a new letting, while a full rebuild with technical upgrades can cost 15,000-25,000 kr/m². What the landlord gets in return is a longer contract, a higher contract rent, or both. These are negotiated in parallel: the tenant's bargaining power can push the landlord to a much higher level of improvement than the rent alone justifies.
For accounting purposes, tenant improvement is typically capitalised and depreciated over the term of the contract or the expected life of the building, whichever is shorter. This depreciation period is central to negotiations with banks and valuers: a landlord who spends NOK 15 million on tenant improvement under a 10-year contract depreciates NOK 1.5 million per year, while a landlord who spends the same amount under a 5-year contract has to take a full NOK 3 million per year. The shorter contract is therefore considerably more expensive per let square metre, even if the rent levels look the same.
In discounted cash flow models and valuations, tenant improvement is typically modelled as a one-off cost in the year before contract renewal, an estimate based on market norms per square metre, adjusted for the standard of the building and the expected tenant profile. This is one of the largest hidden costs in a "stabilised" building with a short remaining lease term: if it looks profitable on today's net rent, the picture can change dramatically once a realistic tenant improvement cost is included at contract expiry.
The industry in Norway has established norms for what counts as "tenant standard", typically painting, flooring and light fitting-out of furnishings, while technical systems, the facade and the main structure are for the landlord's account as ordinary maintenance. The interface between the two is often set out in the contract in a standard delivery specification ("LBS") describing the respective contributions of the landlord and the tenant.
In Placepoint you can compare tenants, contract length and unit sizes from the property panel when you model tenant improvement as a future one-off item in a multi-year model.
How it looks in Placepoint
In Placepoint you find this in Property panel, Units and Tenants:
From Placepoint's glossary: Tenant improvement
More information: Eiendom Norge: Market reports, Akershus Eiendom: Market Report, Norsk Eiendom
English: Tenant improvement (TI), tenant fit-out, leasehold improvements.
Frequently asked questions
Who pays for the tenant improvement?
In Norway, the landlord is normally responsible for the improvement work itself, while the tenant pays for more specific interior items (furniture, IT, branding). The interface is set out in a delivery specification (LBS) in the contract and varies from agreement to agreement.
What does tenant improvement cost per square metre?
For standard office premises, the level is typically 4,000-8,000 kr/m² for a new letting. A full rebuild with technical upgrades can cost 15,000-25,000 kr/m². The figures are established industry numbers as of 2026 and vary considerably with the standard of the building and the complexity of the work.
How is tenant improvement depreciated in the accounts?
The amount is typically capitalised and depreciated on a straight-line basis over the term of the contract or the expected life of the building (whichever is shorter). A NOK 15 million investment under a 10-year contract gives NOK 1.5 million in annual depreciation.
Why is tenant improvement so important in valuation?
Because it is a substantial one-off cost at contract renewal that is often left out of figures based on today's cash flow. A realistic model has to include the expected tenant improvement cost at each contract rollover to avoid systematically overstating the net return.