Concessions offered to lure office tenants are eating away at landlords' income - Phoenix Business Journal

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A growing spread between starting and effective rents illustrates how office landlords — even among coveted Class A buildings — are seeing their rental income eroded as the office market remains squarely in favor of tenants.

It represents another challenge facing the office market, which continues to see depressed leasing activity and rising vacancy, including from sublease space.

"What we’re seeing is, even if starting rents look like they're back to pre-pandemic levels or even exceeding it, the amount of concessions landlord are offering are well above pre-pandemic, which is really affecting the income to the landlord," saidflight-to-quality being a demonstrated trend CompStak found the average amount of free months awarded for Class A office space is up 42.9% from the end of 2019, to 6.2 months, while it's up 32.1% for Class B space, to 3.9 months. Among Class B office space tracked by CompStak, effective rents are down 4.4% since the end of 2019, and starting rents are down 1.8% during the same period.

The average work value — a term used by CompStak to describe tenant-incentive allowances — awarded for Class A office space is up 48.9% from the end of 2019 to $58 per square foot, according to CompStak. In Class B space, the average work value is up 32.3% from late 2019, to $31 per square foot.

 

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