Leasing Incentives On The Rise
An Austin landlord suddenly loaded up the incentives to entice one of our clients to move forward with their Class B, suburban office space. This included 4 months of free base rent on the front of a 64-month lease and an increase in their tenant improvement allowance from $20 per SF to $35 (which is a very generous allowance for 2nd generation space). The total in new concessions for our client was around $100,000 or 4.5%.
This was an aggressive change in strategy in the several months of negotiation. We believe that this Landlord is ahead of the pack in making the adjustments needed in the slowing office leasing environment ahead. Another reason for the concession is the Landlord has 2 other spaces of almost identical size vacant in their project. Getting this space leased before the holidays, in advance of a slowing market is the right strategy… and a big win for our client!
Notice that I didn’t say they lowered the base rent… because they didn’t. It is still within $.50 of the rate that was originally quoted with 3% annual increases. This high rental rate is locked in for 5 years and preserves the building’s value for the future. The levers that landlords will use to lure tenants in this downturn will be front-loaded discounts like free rent, tenant improvements, and moving allowances.
Negotiation is of course hyper-local. If a building owner with 100% occupancy is negotiating an office renewal, their rate flexibility will be a product of their desperation. A small building owned by an individual with 50% vacancy will likely have more urgency to collect rent than a large REIT owned office tower. Understanding the leverage of an individual Landlord is important as we coach our clients to the best decisions.
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