Office Landlords Granting More Concessions to Secure Tenants During Pandemic

8/24/20

CBRE Analysis Finds Free Rent and Tenant-Improvement Allowances On Rise

Office building owners provided more free rent and larger tenant-improvement allowances in the second quarter to secure new office leases and renewals amid a general slowdown in leasing activity due to the pandemic, according to a new report from CBRE.

The impact of these concessions is evident in the second quarter’s 6.6 percent, year-over-year decline in net effective office rent in the 15 largest U.S. markets, according to CBRE. Net effective rent takes into account financial concessions (periods of time that a tenant does not have to pay rent, contributions toward the construction of a tenants space, etc.) that will be subtracted from a lease’s contracted base rent. In comparison, base rent – before concessions – declined by only 1.1 percent in the second quarter from a year earlier.

Meanwhile, the average length of free-rent periods provided to induce a new lease signing or renewal in the second quarter amounted to 10 months. That’s a 13.7 percent increase from the first-quarter average.

Another measure of concessions – tenant-improvement allowances – increased by 5.1 percent in the second quarter from the first to $75.57 per square foot. Landlords provide tenants these allowances to build out their new space to their individual needs. That percentage gain might have been greater if not for declines in construction pricing.

“Overall, U.S. office-leasing activity declined by roughly 43 percent in the second quarter from a year earlier, so it is to be expected that building owners would need to occasionally use some sweeteners to nail down a new lease in this tough environment,” said Whitley Collins, CBRE Global President of Occupier Advisory & Transaction Services. “This means that office tenants can find some advantageous terms in many markets, at least until the U.S. economic recovery gains more momentum.”

To read the full report,click here

About CBRE Group, Inc.

CBRE Group, Inc. (NYSE:CBRE), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2019 revenue). The company has more than 100,000 employees (excluding affiliates) and serves real estate investors and occupiers through more than 530 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.