Office landlords granting more concessions to secure tenants during pandemic

Office building owners provided more free rent and larger tenant-improvement allowances in the second quarter to secure new office leases and renewals amid a general slowdown in leasing activity due to the pandemic, according to CBRE.

The impact of these concessions is evident in the second quarter’s 6.6 percent year-over-year decline in net effective office rent in the 15 largest U.S. markets, according to CBRE. Net effective rent takes into account financial concessions (periods of time that a tenant does not have to pay rent, contributions toward the construction of a tenant’s space, etc.) that will be subtracted from a lease’s contracted base rent. In comparison, base rent — before concessions — declined by only 1.1 percent in the second quarter from a year earlier.

Meanwhile, the average length of free-rent periods provided to induce a new lease signing or renewal in the second quarter amounted to 10 months. That is a 13.7 percent increase from the first