Office tenants continue to live partly rent-free in Class A property landlords.
According to statistics, landlords of Manhattan’s top office buildings lose an average of 24% of their franchise rent Avison Young stats According to Business Observer.
Concession rentals across all asset classes collectively lost 21.3 percent, according to the report, which looked at leases larger than 20,000 square feet and with a term of at least seven years.
While Grade A offices are more likely to command higher rents than lower-grade offices, they are also more likely to offer monetary benefits to tenants, including free rent, furniture or renovation subsidies at the owner’s expense.
For landlords, the situation is not getting better as the distance from the early devastation of the pandemic grows further. Across all asset classes, the average rental loss due to concessions before the pandemic was 16.7%.
For trophy offices above Class A, the situation appears to be less disturbing for landlords. While the average rental loss due to concessions was 17.1 per cent before the pandemic hit, it is now as high as 20 per cent, less than for A-grade properties.
Nonetheless, the demand for offers in different office categories does not appear to be relaxing in the near future.
“Frankly, I don’t think that number will go down in the next couple of quarters,” Avison Young’s Danny Mangru told The Observer.
Other reports have come to similar conclusions about office offers in a market beset by pandemic-affected job trends.
Tenant improvement allowances are near record levels, with the average office tenant in Manhattan getting 16 months of free rent in the first quarter, just one month shy of the peak, according to CBRE data. Before the pandemic, the average rent-free period offered to tenants was 13 months.
— holden walter warner
