What Concessions Are Office Landlords Offering to Hold Onto Tenants as Demand Falters?
Recent reports have shown office landlords have been more willing to offer tenants additional perks to get them to commit.
September 3, 2020 | Sebastian Obando| National Real Estate Investor
Leasing concessions are increasing in the office sector, but how far landlords are willing to go to secure tenants amid a pandemic depends on the office product.
Office lease concessions in the form of free rent and tenant improvement (TI) allowances rose sharply in the second quarter of 2020 as U.S. office demand fell the most since 2009, according to a report from real estate services firm CBRE. Net effective rents for office space dropped by 6.6 percent from the second quarter of last year.
During the second quarter alone, the period of free rent on office leases averaged 10 months, up by 13.7 percent from the first quarter of the year, prior to the pandemic’s peak and widespread stay-at-home orders, according to the CBRE report. Long-term leases on class-A space in New York have seen average free rent increase to 15 months in the second quarter, with TI allowances averaging $115.00 per sq. ft., says Sarah Dreyer, head of Americas research at real estate services firm Savills. For comparison, in the second quarter of 2019 those figured totaled 11.5 months of free rent and $103.00 per sq. ft. in TI.
