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Office Building Owners Pull Back on Tenant Concessions
Office building owners reduced tenant concessions in 2024, according to a CBRE report and accompanying press release. However, the reasons for the decline differ.
Overall, landlord concession packages have trended downward since their 2023 peak, though they remain about 30% higher than in 2019. The report noted that in 2024, tenant improvement allowances for top-tier assets fell by 10% to $92 per square foot. Meanwhile, the TI allowances fell by 16% to $73 per square foot in lower-tier office buildings.
At the same time, free rent concessions fell from its peak of 9.6 months in 2023 to 8.9 months in 2024.
The CBRE press release explained that:
- Class A and A+ buildings have reduced concessions “because healthy demand for and limited supply of top quality buildings has lessened the need for such enticements.”
- Landlords of Class B and C office buildings can’t offer pricey concessions. “Instead, many are now lowering their base rent to attract tenants,” the report said.
“The decrease in concessions last year is another sign of stabilization and nascent recovery in the office market,” said Mike Watts, CBRE President of Americas Investor Leasing in the release. “But this recovery isn’t uniform. The market is further bifurcating between top-tier buildings and lower-tier buildings.”
The report pointed out that landlords managing financial pressures will likely continue to reduce spending on concession packages while lowering rents to lure tenants. Meanwhile, tenants should “have the upper hand” when negotiating for space in lower-quality buildings with higher vacancies.
“However, tenants are advised to assess the landlord’s financial health and include protective clauses in their lease agreements,” the report suggested. Doing so could reduce risks involving building ownership changes or maintenance issues.
At the same time, “landlords of quality buildings in the best locations will gain leverage over tenants amid the flight to quality, and as new supply diminishes,” the report said.
- ◦Lease
