Industry Watchers: Owner Concessions On Rise

This is Part I of a two-part series.

Kaufman

Kursman

Jackson

McCarthy

Coutts

Kiell

NEW YORK CITY-According to the 2008 Studley Effective Rent Index Report, the average national concession package rose for the first time since 2003 and insiders agree that concessions are rising. The report found that the average concession package for 2007 was $60.28 per sf, a 7.4% increase from 2006. The report also found that in 2007, average national tenant effective rents, the estimated cost of occupancy, which includes concessions, also increased from 2006 by 23.4% to $55.20 per sf–a probable peak in light of the current economic climate.

Bradley Kaufman, a partner and leasing specialist in the real estate group at locally based law firm Pryor Cashman LLP, tells GlobeSt.com that he is noticing a rise in owner concessions noting that it is directly affected by leasing slowdowns. Kaufman tells GlobeSt.com that concession packages not only affect newcomers to buildings, but they involve existing tenants as well. “It affects everyone in the marketplace.” The intention of offering packages is clearly to help lure cautious tenants who might otherwise wait to commit to space, he says, but “whether it works or not depends on where the market is headed.”

Benjamin Kursman, a partner with New York City-based law firm Herrick, Feinstein LLP, where he is a member of the real estate practice group with a sub-specialty in leasing, tells GlobeSt.com that while he hasn’t done a scientific survey, he has noticed a rise as well. “I do believe it is resulting from a slowdown in leasing activity.” He explains that he does not necessarily think concessions always help entice tenants. “I have heard from brokers that there are prospective tenants who want space now, but in spite of the concessions they have been offered, they believe that rents will eventually fall and are waiting-out the landlords.” Kursman says that from the anecdotal evidence he has seen, he does believe that there has been a softening in the marketplace.