Office Building Owners Offering Fewer Concessions to Tenants, CBRE Finds
(Illustration courtesy of CBRE)
The enticements that companies receive to sign new office leases declined last year, on average, for the first time since at least 2019, according to CBRE, Dallas.
This decline in concessions–which include months of free rent as well as money provided by landlords for companies to build out the interior of their offices–influences the rent that building owners can charge for their properties.
Owners of top-tier Class A and A+ buildings are reducing concessions because healthy demand for and limited supply of top-quality buildings has lessened the need for such enticements. Many of those owners also raised the first-year base rents for their top-tier properties.
Meanwhile, demand is not as strong for Class B and C buildings, and many of those landlords can’t continue to offer concessions. Instead, many now are lowering their base rents to attract tenants.
A CBRE analysis found that the amount of free rent provided in new leases, averaged across top-tier and lower-tier buildings, declined to 8.9 months in 2024 from the peak of 9.6 months in 2023. Meanwhile, the average tenant-improvement allowance dropped to $87.51 per square foot in 2024 from $97.55 in 2023. Despite this decline, concessions still are 30% higher than before the pandemic. CBRE studied 4,350 new leases in 12 U.S. markets from 2019 to 2024 for its analysis.
“The decrease in concessions last year is another sign of stabilization and nascent recovery in the office market,” said Mike Watts, CBRE President of Americas Investor Leasing. “But this recovery isn’t uniform. The market is further bifurcating between top-tier buildings and lower-tier buildings.”
That divergence is reflected in net effective rents, which discount building owners’ cost of providing concessions. Effective rents for top-tier buildings increased by 5.2% in 2024, partly because those landlords have cut concessions and partly because demand has allowed many to raise their base rents.
Meanwhile, effective rents for lower-tier buildings declined by 1.2%, partly because many have lowered their base rents. That gap between top-tier and lower-tier net effective rents of 6.4 percentage points was wider last year than in 2023 (3.3 ppts). “Owners of top-tier properties are benefiting from strong demand for their spaces and a curtailed construction pipeline, allowing them to offer fewer concessions than in the past to attract tenants,” noted Jessica Morin, CBRE’s Americas Head of Office Research.
