Business owners searching for new commercial space will usually hear the terms white box, vanilla shell, grey box, or cold shell, in discussions about new construction plans or landlords with spaces for lease. Without a proper understanding of these terms, a tenant can get confused and come up with wrong decisions that may lead to unnecessary delays and costly complications.
In evaluating construction bids and negotiating commercial leases, all parties need to have the same understanding and definition of the white box and other real estate finishes to avoid miscommunication and effectively manage costs and expectations.
In this article, white box construction will be fully defined, compared with other construction shells or conditions, and evaluated based on its cost and benefits.
What is White Box Construction?
White box (also called a vanilla shell or warm shell), in commercial construction and real estate parlance, is a partially finished commercial space that a contractor delivers to the landlord or tenant.
The term “white box” comes from the look of a minimally finished space that has white dropped ceiling and white sheet-rocked walls. It refers to a commercial space’s condition before a tenant’s remodeling or finishes.
A white box is a commercial space that typically includes the following provisions:
The exterior shell includes a complete and finished structural system for the building, a finished roof of the landlord’s design, and an entire rear wall, usually of steel studs, drywall, or any material chosen by the landlord.
A white box has drywall tenant separation walls that are insulated and ready for the tenants’ painting, a storefront door, windows, and concrete flooring.
A white box can have one or two restroom/s as required by regulations, complete with all American with Disabilities Act (ADA)-compliant accessories, vinyl tile floors, and white drywalls. Doors have standard ADA hardware, door closer, and a privacy lockset.
A white box has a meter blank and disconnect in the building’s electrical room and the following specifications:
- 200 amp 120/208v, three-phase, four-wire service or as available from the utility vendor
- Emergency lighting as required by the State Fire Marshal or as regulated
- One or two standard duplex outlets of 110v
- Electrical for the restroom(s) exhaust fan, disconnect, and maintenance outlet at the RTU, and one sign circuit for the tenant’s building front signage.
- Conduits for phone, data, and cable service
A white box has all plumbing fixtures and connections for required restrooms, a janitor’s sink, and a drinking fountain as required by code.
Heating, Ventilation, and Air Conditioning (HVAC)
The landlord will install required air handlers for the RTU, main truck lines, ductwork, distribution grilles, and diffusers.
Fire Suppression System
The landlord will install the required sprinkler system, and standard brass heads turned upright to floor deck with maximum spacing in compliance with the fire code.
A white box finish does not include the following:
- Interior walls finishing, painting or wallpaper (apart from restrooms)
- Plumbing fixtures (aside from drinking fountains and code required restroom fixtures)
- Upgraded electrical fixtures
- Security systems
- Telephone, cable, and data wiring
- Modifications to the HVAC system layout
The clean lines and bare finish of a white box real estate appeal to tenants who can easily see the potential of this partially-finished space. With a white box finish, tenants can quickly convert the structure to anything they want, customized to their business needs.
White Box vs. Grey Box
After understanding what provisions are included and excluded in a white box build, it is time to define other commercial construction shell types.
Grey Box or Cold Shell
A grey box is a commercial space which is unfinished and has the following characteristics:
- Unfinished floors
- Bare stud walls
- No plumbing and electrical works
- May include HVAC unit but without controls or ductwork
- May include a sprinkler system if required by code, but not dropped to ceiling height
Warm Grey Box
The HVAC system required electrical and plumbing are in place in a warm grey box. However, there is no permanent lighting.
Cold Grey Box
A cold grey box does not have a permanent HVAC. It does not have any finish and is as bare as a shell as can be. Only perimeter walls and a roof are in place.
A fully-finished commercial space has all of the finishes of the previous tenant. It can also refer to a new commercial space built with finished flooring, paint, ceiling, doors, and cabinetry. A white box shell offers tenants a nearly-finished space for a faster move-in time while a grey shell requires more finishing works to complete the structure. The finishing cost for a white box shell can range between $5 and $20 per square foot. Meanwhile, a grey shell can cost $30 to more than $100 per square foot to finish.
Advantages of White Box Construction
Different tenants have different ideas of design, layout, and needs to suit their business. Since it is difficult to predict the requirements of each tenant, building a white box and leaving the finishing touches to them is a sensible strategy.
Here are other benefits of constructing a white box structure:
- The flexibility of a white canvas gives tenants more room to create and custom-fit the space based on their needs
- Cost savings from faster design and build process
- Lower cost for build-out since basic finishes are already in place
- Zero waste since there are no fittings for the tenants to remove or throw away
How Much Does It Cost to “White Box” a Commercial Space?
The cost to white box space will depend on the existing condition and size of the area, the definitions, and scopes of work. The steps in building a white box space typically include securing permits, demolition, and construction.
It is necessary to identify which work scope will need to be permitted and to what extent before performing any construction work. A demolition permit may be required, with the cost dependent on the size of the demolition project.
The white box construction will require a full building permit for additional scope of works that include:
- Lighting installation above what is required by code
- Installation of dropped ceilings
- Modification and relocation of sprinkler heads
- Expansion or relocation of the HVAC system
- Installation of drywall surrounding exterior walls
- Installation of dividers and demising wall to create smaller offices
- Installation of exit signs, as required by life safety code
A small-scale demolition permit can cost as much as $250. A full building permit can cost more than $1,000. A permit expeditor may be needed in securing a complete building permit and can cost more than $1,500 on top of the permit cost.
Here are the scopes of work needed to achieve a white box finish with their corresponding estimated costs:
- Installation of the dropped ceiling with tiles – $3-5 per square foot
- Installation of drywall to subdivide the space – $5-10 per linear foot
- Concrete flooring – $3-5 per square foot
- Installation of HVAC units with controls, supply and return air systems – $5-10 per square foot
- Installation of outlets, lighting, and electrical switches – $3-5 per square foot
- Construction of restrooms, as per code – $5,000-10,000 per restroom
- Plumbing, electrical, and mechanical engineering services – $1.50 per square foot
- Architectural services – $3 per square foot
- Project management services – 5% of managed costs
- Accessibility inspection charge – around $1,500 for inspection and plan review (for projects that cost $50,000 and above)
Although the finished look of a white box project may look like a bare minimum, the process of accomplishing this finish is meticulous. All provisions must be compliant to the building code and ready for the tenant’s improvements.
White Box Build-Outs
White box build-out means making the commercial space ready for occupancy. It usually includes installation of lighting, flooring, interior walls and dividers, and other furnishings. To complete a white box build-out, a landlord may purchase materials for the tenants to install. Another option is to offer a rent-free period for tenant construction without providing build-out materials.
A landlord can also offer a tenant improvement allowance (TIA) to configure and improve the space based on the tenant’s needs for white box build-out. This allowance only covers works that are crucial in making the space operational. However, it excludes costs for furniture, fixtures, and equipment (FFE), paint or wallpaper, and other upgrades more related to the business than the building or structure itself.
Usually, tenants shell out money for initial build-out costs. The landlord often reimburses the TIA through progress payments for work completed or lump sum payment at the end of the tenant’s construction. The TIA is usually computed per square foot and expressed in total dollar sum. The landlord and tenant finalize the amount during lease negotiations.
Finalizing the Lease Agreement
A lease agreement between the landlord and tenant must be negotiated and executed before the completion of a white box build-out. Finalizing a lease agreement ensures that the landlord does not pay for unnecessary or unwanted improvements. Since landlords and tenants might have a different interpretation of the contract, it must be detailed and thorough to avoid confusion, additional expenses, and possible legal issues. Ensure that the lease agreement specifies all the construction works. A legal consultation may be necessary to ensure that all stipulations in the lease agreement are clear and understood by the landlord and tenant, especially for long-term and high-value leases.
Finding the Right Contractor for White Box Construction
To accomplish a white box construction project, look for a reliable contractor that will:
Help the client complete the plan design and permitting requirements
They should have a licensed in-house architect or referrals of reputable ones with full knowledge of plan and building code requirements. They should also secure all the necessary permits before the start of construction.
Provide a detailed and comprehensive cost estimate with a breakdown of line items
The contractor should provide a cost estimate that covers all scopes of work for completion. There should be no hidden costs and charges. The contractor should fully inform the client if there are any adjustments or changes.
Ensure fast turnaround
The contractor should outline and follow a step-by-step construction project schedule. The contractor should ensure that all the project steps are carried out on time and minimize delays. They should maintain consistent communication with the client, give quick responses, and deliver a fast turnaround while maintaining a high standard of construction.
Given the construction expenses, why would a landlord opt to deliver a commercial space in a white box condition? White box construction is for commercial space owners who need to add a new tenant to their property immediately. A white box finish allows the tenant to customize improvements and finishes to suit their business needs.
With a white box finish, tenants can quickly convert the space to their desired preferences and specific requirements. White boxed space is also more presentable to prospective clients, especially if it came from a rough and unfinished status.
Potential tenants can visualize and plan their layout more efficiently. It would be more convenient for clients to imagine how their FFE can fit within the commercial space. A white box has advantages for potential tenants if they are satisfied with the finishes. It makes their additional work to build-out space minimal compared to a cold shell condition.
Overall, a white box space is quicker to lease out at a potentially longer-term and higher rate than a commercial space in a cold shell or bare condition.