Office Landlords Now Offering More Than a Year of Free Rent
With the uncertainty of the pandemic, companies have held the upper hand in negotiations with landlords. In the first quarter of 2021, the average free rent landlords are offering to secure a long-term lease of 10 years or more increased to 12.5 months, representing a 29% increase year-over-year, according to CBRE. In 4Q19 – immediately prior to the pandemic – free rent averaged 9.5 months. Between 4Q19 and 4Q20 free rent jumped to 11 months, jumping by an additional 1.5 months in 1Q21. Despite this, tenant improvement allowances have stayed firm around $75 per square foot and asking rents also remained relatively steady. Leasing activity has increased since December as things stabilize with some expecting the market to improve once the population reaches heard immunity later this summer. Still, many see situation getting worse before it gets better, with a report from Moody’s Analytics REIS predicting that effective rents will decline by 7.5% this year with vacancy rates continuing to rise.
What Will Happed to All the Empty Office Buildings and Hotels?
Many of New York’s hotels and office buildings have been empty for over a year now as the pandemic keeps tourists and workers out of the city. In March, more than 17 percent of Manhattan’s office space was vacant, according to CBRE. Similarly, facing a drought of tourists roughly 200 of the City’s 700 hotels have been closed since Covid hit. In April, New York hotels accounted for $1.8 billion in debt delinquencies, the highest amount in the country by a wide margin. And there is growing belief that some of those properties may never recover. An effort is afoot to take these eerily empty commercial structures and convert them to new uses, potentially spurring a number of building conversions not seen since the crash of the late-1980s. The conversions seem to fall into three categories: offices to housing, hotels to housing, and hotels to offices. While the concept of these conversions draws considerable interest by developers and politicians alike, much of the conversation revolves around whether the conversions can happen efficiently both financially and architecturally. While these types of conversions wont necessarily work with every building, over its lifetime, New York City is no stranger to repurposing buildings.