Snapshots

New lease concessions for high-end space remain near historic highs

September 09, 2024

Contributors:

Although an increase in subleases and renewals as a share of overall transaction activity is driving a nominal decline in tenant improvement allowances, concessions for new deals in high-end space remain near historic highs.

Across major markets, new leases and relocations signed in Trophy product in the past year saw an average concessions rate of 18.7%, higher than pre-pandemic concessions rates, which ranged from 10%-15%.

The average 10-year lease in Trophy product received a $110 per s.f. tenant improvement allowance and 9.8 months of free rent. While landlords have generally been successful in holding face rents steady, most deal profiles continue to see concessions trend upwards, with tenant improvement allowances up 10% for new, first-generation leases and up 6% for renewals.

A pullback in new construction, along with higher costs of capital and some landlords’ hesitancy to fund deal costs have driven renewal rates higher, but have not created meaningful declines in concessions among comparable transactions. Availability has been high enough in most markets that tenants have been able to focus on financially healthy landlords with access to capital and still find options. However, given a growing bifurcation in availability of high-quality space vs. commodity product, the window of opportunity for tenants to drive favorable deal economics for themselves will be limited.

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