Landlord concessions and tenant improvement allowances (TIAs) have been on the uptick over the last few years. Remote and hybrid work trends have led to higher competition for office tenants, and as a result, many landlords are offering longer periods of free rent and higher tenant improvement allowances. Some major markets, particularly New York City, are seeing more of this than others, but improvement allowances and concessions are up across the country. Negotiating these deals has become a critical part of the leasing process for landlords, who need to balance filling office space and keeping property cash flowing.
Tenant improvement allowances, also sometimes referred to as a fit-out or build-out allowance, are usually negotiated by landlords and tenants during a lease transaction. A credit is given to the tenant for improvements to the space leased and can go toward things like walling, flooring, HVAC, electrical costs, and plumbing. Things that may not be covered under a TIA could be things like furniture, electronics, and any moving costs. These allowances are often calculated based on an allowance per square foot, for example, a TIA could be calculated at $10 per rentable square foot, which in a 15,000-square-foot space, could mean a $150,000 allowance. TIAs aren’t expected to be returned to the landlord, but most landlords look to recoup the cost of the allowance by adding a portion of the TIA in the base rent or extending the length of the lease.
In Manhattan, the country’s largest office market and a city that’s often
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