New York office concessions increase in sign of market’s strength
Property landlords have roughly doubled the concessions they grant in New York office leases over the past decade, a sign analysts say is one of strength not weakness as tenants demand swankier workplaces to attract and retain employees.
Data from brokerage Colliers International show a 17 % surge so far this year in landlord allowances for tenants to furnish and build out an office, indicating a more competitive market as employment booms in Manhattan.
Rising concessions typically herald a downturn. Yet the allowance increase, on top of an 8 percent jump through June in the number of free months rent landlords offer, point to the city’s robust real estate market for office space.
“When you think landlords are competing for tenants, it sounds like they’re desperate, that there are so few tenants,” Craig Caggiano, an executive director in Collier‘s New York office, said in an interview.
“To me it talks to the overall strength of the market.”
A construction boom and the use of open floor plans, where the space workers occupy has shrunk, have effectively increased the office supply in Manhattan where demand remains strong.
Leasing activity through June ran 22 percent above Manhattan’s 10-year average, Colliers said. The traditional financial services and insurance industries outpaced technology, advertising, media and information, a sector that has led job growth and leasing since the downturn.
Record low unemployment in Manhattan and population growth throughout New York City, which has reversed a decades-old decline, are driving the real estate market.
The demand for nicer pantries and other workplace amenities, such as lounge areas, have led landlords to increase the allowance they provide in leases for “tenant improvements.”
TI, in industry parlance, jumped to $80.55 a square foot in the first half, up from $68.91 last year and $34.87 in 2008, Colliers said. Free rent climbed to 10.7 months in the first half, up from 9.9 months in 2016 and 6.0 months in 2008.
Rising expectations for exceptional workplaces have pushed up construction costs, while demand for more flexible leases and workplaces have pressured landlords, explained Jamie Hodari, co-founder and chief executive of Industrious, a chain of 26 U.S. coworking sites.
“The dominant trend right now in commercial real estate is this increasing push for flexibility among tenants,” he said. “You just can’t compete for talent anymore if people walk into your office and it looks unpleasant and unhappy and outdated.”