Tenant Improvement Costs Are Diverging by Region

The News

Industry data compiled by Terrapin Commercial Group and others shows that tenant improvement costs are running well above national averages in several major markets. The Northeast (New York, Boston, Philadelphia, Washington D.C.) is the most expensive TI region in the country, with costs running 25 to 45 percent above the national average. Drivers include union labor, high permit fees, constrained subcontractor availability, and stricter code requirements. The West Coast shows an 11 percent labor surcharge over the national average.

Approximately 60 percent of 2026 leases in competitive markets now include some form of TI cost escalator or adjustment provision, signaling that landlords and tenants are both adapting to construction cost volatility.

Why the Variance Is Widening

Regional construction cost variance is not new. What has changed in 2026 is the magnitude. Three forces are pulling regions apart.

First, labor markets are diverging. Union markets in the Northeast and West Coast are seeing wage growth that non-union markets are not. Second, permit and code regimes are evolving asymmetrically. The 2026 code cycle brings major shifts in energy standards, electrification, and climate resilience, but jurisdictions adopt at different speeds and with different stringency. Third, supply chain dynamics favor markets with better logistics, leaving smaller markets paying premiums for materials.

The net effect is that a national TI cost benchmark is increasingly meaningless. Operators planning portfolio-level TI budgets need market-specific numbers, not a single average.

What This Reveals About Multisite Budgeting

Many multisite operators still budget TI as a flat dollar-per-square-foot figure across their portfolio. That approach worked when regional variance was 10 to 15 percent. It does not work when variance is approaching 50 percent.

The operators who will hit their budgets in 2026 are the ones who have moved to regional TI benchmarks, who renegotiate landlord TI allowances against current local construction costs rather than historical averages, and who account for code-driven cost changes in their planning. The operators who are still using last year's national average will be over budget by the time they realize what happened.

What Operators Should Do

Practical steps for the next quarter:

• Replace your national TI benchmark with regional benchmarks. Northeast, West Coast, Sunbelt, and Midwest at minimum. Major metros within those regions if you have enough portfolio data.
• Update lease negotiation playbooks. TI allowance asks should reflect local 2026 cost realities, not historical comps.
• Build code-cycle awareness into your pre-construction process. The 2026 code cycle brings cost-impactful changes to energy and electrification requirements that some teams have not modeled yet.
• Track actual TI costs by market across your portfolio and feed that data back into your budgets. Your own data is more accurate than third-party benchmarks.

Sources

Reporting and data referenced in this article:

• Terrapin Commercial Group, Tenant Improvement Buildout Costs for Commercial Retail Space 2026 - https://terrapincg.com/news/tenant-improvement-buildout-costs-commercial-retail-2026
• Statista, U.S. retail construction costs 2026 by city - https://www.statista.com/statistics/830375/construction-costs-of-retail-shopping-facilities-us-city/