# Office Building Owners Pull Back on Tenant Concessions
Office building owners scaled back tenant concessions in 2024, according to a CBRE report. However, the reasons for this decline vary.
Overall, landlord concession packages have been decreasing since their peak in 2023, though they remain about 30% higher than in 2019. The report highlighted that tenant improvement (TI) allowances for top-tier assets fell by 10% to $92 per square foot in 2024. Meanwhile, TI allowances for lower-tier office buildings declined by 16% to $73 per square foot.
Similarly, free rent concessions have also dropped, falling from a peak of 9.6 months in 2023 to 8.9 months in 2024.
According to CBRE, the reduction in concessions can be attributed to different factors based on building class:
– **Class A and A+ buildings** have lowered concessions due to strong demand and a limited supply of top-quality properties, reducing the need for incentives.
– **Class B and C buildings** face financial constraints that prevent them from offering costly concessions. Instead, many landlords are opting to lower base rents to attract tenants.
“The decrease in concessions last year is another sign of stabilization and a nascent recovery in the office market,” said Mike Watts, CBRE President of Americas Investor Leasing. “But this recovery isn’t uniform. The market is further bifurcating between top-tier and lower-tier buildings.”
The report noted that landlords experiencing financial pressures will likely continue reducing concession packages while adjusting rents to attract tenants. It also advised tenants leasing lower-quality buildings with higher vacancies to take advantage of their stronger negotiating position. However, tenants should assess the landlord’s financial health and include protective clauses in lease agreements to mitigate potential risks related to ownership changes or maintenance issues.
At the same time, landlords of high-quality buildings in prime locations are expected to gain leverage amid the ongoing “flight to quality” and the decreasing supply of new office space.
