Outlook 2018: Foreign Investment Remains Strong, Cost to Retain Tenants On the Rise

Latham: “Some things happened last year that started to create uncertainty in the minds of investors, and as a result people started to tap the breaks and be a little more cautious.”

NEW YORK—Tenant improvement (TI) allowances and free rent are up nationwide and growing at a more rapid pace, and there’s been a significant slowdown in velocity despite ample capital in the market, Scott Latham, vice chairman and co-lead for Colliers International‘s New York capital markets and investment services, and Andrew Nelson, the firm’s chief economist, tell GlobeSt.com. As 2017 draws to a close, we spoke with Latham and Nelson about current CRE investment trends, both on a national and global level, and the role of rising interest rates in investor strategy for 2018.

One overarching trend Latham notes is the increasing cost of attracting and retaining tenants. “Tenant improvement allowances and free rent are up about 70% in midtown Manhattan over the last five years, which equates to $65 per square foot in TI allowances and eight months of free rents,” he says. While those are approximations and each transaction is different, it is getting more expensive for landlords to both attract tenants seeking space and retain the tenants they already have.