What does 'tenant improvement' refer to in commercial real estate?

Tenant improvement refers specifically to the process of customizing a rented space to meet the particular needs and preferences of a tenant. This can include modifications such as installing partitions, upgrading fixtures, changing flooring, or configuring workspaces tailored to the tenant’s operational requirements. This customization is essential in creating a functional and efficient environment, enhancing productivity and satisfaction for the tenant.

In contrast, the maintenance of a building's exterior involves upkeep activities that ensure the property’s structural integrity and appearance without directly catering to the individual requirements of any specific tenant. Negotiation of lease terms pertains to the discussions and agreements related to the rights and obligations of both landlords and tenants, which does not directly involve physical alterations to the rented space. General upgrades to shared facilities could enhance common areas but do not focus on the individualized adjustments and improvements that tenant improvement signifies. Therefore, the essence of tenant improvement lies in creating a tailored space for occupants, making it the correct choice.