Companies Willing to Sign Long-Term Leases in Q1 Received a 1-Year Rent Reprieves
According to a new report from CBRE, the average amount of free rent that office landlords conceded to secure long-term leases in the U.S. climbed to 12.5 months in the first quarter, up 29 percent from a year earlier.
Meanwhile, tenant-improvement allowances - money that landlords provide tenants to fit out the interior of their offices - have held steady at an average of roughly $70 to $75 per sq. ft. These statistics are for newly signed leases of at least 10 years in term.
For the past year, companies have held the advantage over office landlords in lease negotiations amid uncertainty about the timing of an economic recovery and the effectiveness of efforts to thwart the COVID-19 virus. As vaccinations have gained momentum and government stimulus bolsters consumer-spending, signs of a strong economic recovery are increasingly evident. But how quickly that rebound will benefit the office leasing market remains to be seen.
"Companies seeking long-term leases will find that asking rents haven't come down much, but overall concessions have increased," said Whitley Collins, CBRE Global President of Advisory & Transaction Services. "Those willing to get out in front of the full economic recovery can expect most landlords to be very accommodating."
There are early signs that concessions may cool a bit, but they are small factors at best. For example, average rent declines got smaller over the past two quarters.