Concessions are king at the top of Manhattan’s office market

Months of free rent, improvement allowances abound in triple-digit lease asks

Buildings, pencil, erase
(Getty; Illustration by The Real Deal)

There’s no such thing as free rent — unless you’re a Manhattan office tenant.

Concessions continue to abound in the borough’s office landscape, according to CBRE data reported by the Commercial Observer. While no longer at the peaks seen in 2022, discounts don’t appear to be disappearing anytime soon, muddying the overall picture of the office market.

Landlords in the first quarter inked 28 deals with starting rents of $100 per square foot or more, according to CBRE, slightly higher than the five-year quarterly average. CBRE’s data includes deals for at least 25,000 square feet and 10 years.

But rising prices have been outpaced by the concessions tenants are scoring from landlords desperate to fill their vacant spaces. During the first quarter, an average tenant landed 16 months of free rent on their leases, down only one month from last year’s peak, according to CBRE. Prior to the pandemic, the average was 13 months.

“There are some buildings that are either brand new or have gone through a revitalization, so even offering very high concessions, net effectively, some of those deals are still ahead of where they were 15 years ago,” Frank Wallach, an executive at Colliers, told the outlet “But, on an overall basis, the concessions have increased at a faster rate than the rent.”

Tenant improvement allowances are also hovering near record highs. The perk peaked last year at an average of $147 per square foot, and only declined to $145 per square foot in the first quarter, CBRE revealed. The pre-pandemic average was $104 per square foot.

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Trophy office buildings, the beneficiary of tenants’ flight to quality, are head of the class when it comes to concessions.

Tenants are more likely than ever to land a lease below the $100 per square foot threshold at Class A buildings, but the properties remain above prices at Class B or C properties.

The pandemic and murky future of the city’s office market are big factors driving concessions. There are other forces at play, though, including rising construction costs and the desire of some landlords to save face with their lenders.

Tenants took 7.4 million square feet in the first quarter, up 49 percent from the fourth quarter, according to Colliers. The uptick, however, was largely driven by renewals and extensions and the availability rate ticked up slightly to 17.1 percent.

Holden Walter-Warner

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(Photo Illustration by The Real Deal with Getty)
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