Office Landlords Luring Tenants Back With Incentives

An article in The Real Deal assesses the state of the U.S. office real estate market, which is showing some signs of recovery after the pandemic drastically reduced the need for office space. However, the article notes that this is due in part to significant incentives offered by landlords desperate to close deals.

"CBRE reported cash payments made to tenants in the Manhattan office market have more than doubled from 2016 to 2021, from $76 per square foot to $154 per square foot, for the market’s most expensive leases." With the incentives factored in, landlords are collecting 7.7 percent less rent than five years ago. But despite the hit, the article indicates that "landlords benefit by having high rents on paper to inflate the value of the property and perhaps lure other tenants." 

As masses of office workers shifted to remote work over the last two years, occupancy in downtown buildings dropped sharply, leading to financial distress in the industry and creating ripple effects throughout the network of small businesses and vendors that traditionally depend on commuters. In some cases, cities are developing plans to revitalize areas typically dependent on the 9-to-5 crowd and reimagine the use of buildings and public space for more flexible and diverse uses.