From 2011 through 2014, there were 23 lease transactions signed where landlords offered tenants $100 per square foot or greater in work allowances. Back then, $85 per square foot was considered a substantial work allowance offering. Since 2014, there has been a significant increase in $100-plus work allowances, as 88 leases signed over the last two-plus years achieved this concession. To no one’s surprise, 83 leases were located in Midtown, three in Midtown South and two Downtown. The weighted average for tenant improvement allowances offered for these 88 leases was $113.46 per square foot.
The increase in $100 per square foot tenant improvement allowances is partially due to an increase in construction costs. In October 2016, construction costs in New York were up 4.1 percent year-over-year, according to a fourth-quarter report issued by Rider Levett Bucknall, a construction advisory firm. In addition, landlords throughout Midtown continue to make compelling concession packages to retain and capture tenants to compete with new office development projects on the Far West Side and Downtown.
With 94.3 percent of the leases with $100-plus work allowances signed located in Midtown, two-thirds occurred within three submarkets since the start of 2015. These three submarkets are all located on the East Side of Midtown, and with a total of 24, Madison/Fifth had the most leases signed with $100-plus work allowances. Grand Central was close behind with 20 such leases and Park Avenue had 14.
Although the $100-plus trend is growing—24 in 2015, 43 in 2016 and 21 through the first four months of this year—these types of concessions only account for 5.2 percent of the total leasing activity during this period. This is partially attributed to 70 of the 88 leases signed in this analysis ranging from 1,500 to 25,000 square feet. Out of the remaining 18 leases greater than 25,000 square feet, only four of them were larger than 100,000 square feet.