In last months article we focused on the differences between leasing office space in Shanghai and leasing in other cities. This month we discuss leasehold improvements.

Q: In what condition is office space leased?
A: Although it varies slightly from building to building, generally office space is leased in raw condition. This means that only the ceiling grid (T-bar, ceiling tiles and lighting), HVAC (heating, ventilation and air conditioning) and emergency systems (smoke detectors and sprinklers) are installed (based on open layout). All other work in the space is the responsibility of the tenant. Occasionally, if second generation office space is leased, the leasehold improvements from the previous tenant can be reused but generally these will have been removed.

Q: Who pays for the leasehold improvements?
A: Although it is usually possible to negotiate some rental abatement (free rent) to offset the cost, leasehold improvements are almost always paid for by the tenant.

Q: Are there restrictions on how leasehold improvements are constructed?
A: All leasehold improvements must be approved by the landlord and the relevant local authorities (including district re service bureau, tendering bureau and quality bureau) before construction begins. The tenant is responsible for providing formal construction plans to the landlord for this purpose. Landlords usually require that tenants use their designated contractors for any work affecting the buildings HVAC, electrical or emergency systems. Some landlords charge a construction supervision fee at a rate of RMB8-15/sq m (gross) of the tenant?s total leasehold improvement cost.

Q: How much time is needed to complete leasehold improvements?
A: The length of time required for the design and construction of leasehold improvements varies according to the size and complexity of the project. For a typical project, allow six weeks for design and approval of drawings and eight weeks for construction, (not including tenant?s planning and tendering work).

Q: Who manages the design and construction process?
A: Typically, tenants hire one company to handle the design and construction of the leasehold improvements. Until recently, independent project management was not readily available in Shanghai. The role of a project manager is to ensure that all aspects of the leasehold improvement project run smoothly and that the tenant receives good value for money.

Project management includes technical reviews of building systems, aggressive negotiation of construction costs and onsite construction supervision. We recommend project management to all of our clients especially for large projects.

Other facts about leasehold improvement projects:
Labor is not unionized.- Currently there are no major shortages of building materials although importing items can cause delays.- Generally, HVAC systems are either Variable Air Volume (VAV) or Fan Coil Unit (FCU).- Electrical power enters the building at 380 volts, 3-phase, 50 hertz then transformed for use by the tenants to 220 volts, 2-phase, 50 hertz.- Tenants are generally provided with 60 watts of power per square meter leased with additional power available on request.