Manhattan office concessions hit $173 psf

Manhattan’s office landlords were offering concessions valued at an average of $173 per square foot during the first quarter, up 3.3 percent from a year earlier.

As more new office product comes online in places like Downtown and the Far West Side, and tenants continue to densify their spaces, landlords increasingly offer sweeteners like several months of free rent and payments to build out spaces.

During the first quarter, the average value of $173 per square foot was about 2.5 times greater than it was a decade ago, according to data from Savills Studley cited by the Wall Street Journal.

A few years ago, owners were offering somewhere between five and seven months’ worth of free rent and tenant-improvement contributions of $60 to $70 per square foot, industry insiders told the Journal. But now landlords are offering between 12 to 15 months free rent, with tenant-improvement contributions climbing to $85 or more than $100 per square foot.

“They are well aware of a whole bunch of space the market knows is available but is not yet in the [vacancy] statistics,” Savills Studley’s Matthew Barlow said. “Landlords are trying to get ahead of those headlines and rent as much space as they can.”

Brokers and analysts, however, cautioned that increasing incentives aren’t necessarily a sign of a weak market.

“As long as interest rates are low, owners would rather offer larger concessions today for higher face rents going forward,” said Tristan Ashby, the director of research in New York for JLL.

Landlords offering the most aggressive incentives are concerned with keeping the face rents high so they can make a greater return when they go to refinance, recapitalize or sell their properties, the Journal reported.

Still, some landlords are holding the line on concessions. SL Green Realty, for example, said it was averaging $20 per square foot in tenant improvements for renewals and $63 per square foot for new deals. [WSJ] – Rich Bockmann