Class A Office Concessions Outstrip Other Assets

Office tenants continue to live partially rent-free in the heads of their Class A property landlords.

On average, landlords of top-tier office properties are losing up to 24 percent of rent on concessions in Manhattan, according to Avison Young data reported by the Commercial Observer.

All asset classes are losing a combined 21.3 percent of rent on concessions, according to the report, which looked at leases above 20,000 square feet with terms of at least seven years.

While Class A offices are more likely to garner stronger rents than their lesser counterparts, they’re also more likely to concede monetary benefits to tenants, including free rent, furniture or improvement allowances at the owner’s expense.

The situation isn’t getting better for landlords as distance grows from the early ravages of the pandemic. Across all asset classes, the average rent lost due to concessions was 16.7 percent prior to the pandemic.

For trophy offices, a tier above Class A, the situation looks slightly less upsetting for landlords. While the average rent lost due to concessions was 17.1 percent prior to the pandemic, that number is up to 20 percent today, lower than that of Class A properties..

Still, the need to provide concessions across office classes doesn’t appear to be on the verge of easing in the near future.

“Quite frankly, I don’t see that number going down over the next several quarters,” Avison Young’s Danny Mangru told the Observer.

Other reports have come to similar conclusions about office concessions in a market mired by pandemic-aided work trends.

Tenant improvement allowances are near record highs and the average office tenant in Manhattan landed 16 months of free rent in the first quarter, only a month off the peak amount, according to CBRE. Before the pandemic, the average amount of free rent being given to tenants was 13 months.

— Holden Walter-Warner