Is it true that office rents fluctuate less than concessions?
I spoke to a broker who does a lot of office leasing in the NY metro area, and he said that if you take a historical view, rents tend not to fluctuate that much for office space. He said that what fluctuates more are concessions (free rent, TI allowance, etc).
He seemed to be suggesting that rents will not be that negatively impacted by COVID, but that concessions may have to become more generous.
I am wondering if anyone who has experience in this area can corroborate this, or whether you disagree?
I'm doing some market research right now for some office buildings in midtown manhattan. I am just starting out in commercial real estate so I have been trying to have conversations with as many people as possible. I'd be happy to chat with anyone here.
Not in NY but speaking about office generally: As market momentum slows (or grinds to a halt) landlords generally increase concessions first before giving on rate. Most obvious reason being that valuation is generally based on cap rate so higher rent = higher value. From a leasing perspective, I'm sure that people see the rate on your last deal as the starting point for your next deal so you don't ever want to be starting a down-trend there...
That being said, face rates will likely decrease from this recession, just will take a little longer.
Another interesting tidbit, loss factors have been creeping up over the last 2 decades and people are paying for more and more space that doesn’t actually exist. PSF rent and concessions are not the only pricing indicators out there.
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