In a significant shift, U.S. office landlords have begun to reduce tenant concessions for the first time in four years, according to a recent CBRE report. The value of office-leasing concessions, such as months of free rent, decreased in the first half of 2024, signaling a potential peak after years of increases.
The average length of free rent in new office leases dropped to 9.0 months from 9.6 months in 2023. Similarly, tenant-improvement allowances, which cover costs for fitting out office spaces, fell by nearly 3% to $94.69 per square foot from $97.55 in 2023. This decline follows four years of rising concessions.
CBRE’s analysis, which included 3,900 lease transactions across 12 major U.S. markets, suggests that financially strapped building owners are scaling back on generous concessions. Effective rents, which account for these concessions, have been depressed over the past four years, particularly in lower-tier buildings. However, effective rents for top-tier buildings have increased by 2.4%, while those for lower-tier buildings have declined by 1.2%.
Mike Watts, CBRE’s Americas President of Investor Leasing, noted that while this trend is encouraging, it does not indicate a full recovery in the office market. Jessica Morin, CBRE’s Director of Americas Office Research, added that some landlords are turning to less costly concessions, such as shared services and flexible lease terms, to attract tenants.
The report highlights a shift in the office leasing landscape, with landlords exploring new strategies to maintain occupancy and attract tenants in a challenging market.
