# Office Building Owners Pull Back on Tenant Concessions
Office building owners reduced tenant concessions in 2024, according to a CBRE report and press release. However, the reasons for the decline vary depending on property tier.
Overall, landlord concession packages have been decreasing since their peak in 2023. While still approximately 30% higher than in 2019, tenant improvement (TI) allowances in 2024 declined for both top-tier and lower-tier buildings. Allowances for top-tier assets fell by 10% to $92 per square foot, while lower-tier office buildings saw a 16% decline to $73 per square foot.
At the same time, free rent concessions also decreased, dropping from a peak of 9.6 months in 2023 to 8.9 months in 2024.
### Factors Behind the Decline in Concessions
The CBRE report pointed to different factors driving the reduction in concessions:
– **Class A and A+ buildings** have reduced concessions due to strong demand and a limited supply of high-quality office space, decreasing the need for incentives.
– **Class B and C buildings** struggle to offer expensive concessions. Instead, many landlords are lowering base rents to attract tenants.
### Market Stabilization and Segmentation
“The decrease in concessions last year is another sign of stabilization and 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 buildings and lower-tier buildings.”
The report suggests that landlords facing financial pressures will likely continue cutting back on concession packages while reducing rents to attract tenants. Meanwhile, tenants will have more negotiating power in lower-tier office buildings with higher vacancy rates.
However, tenants considering these buildings are advised to assess the landlord’s financial stability and include protective clauses in lease agreements to mitigate risks related to ownership changes or maintenance issues.
Conversely, landlords of high-quality buildings in prime locations are expected to gain more leverage over tenants as the “flight to quality” continues and new office supply diminishes.
