New York Office Tenant Improvement Totals Rise in 2026 Amid Market Shifts

Manhattan tenant improvement (TI) allowances — costs that commercial landlords cover for tenants to remodel spaces — have dramatically evolved since the pandemic. 

Gone are the days in which these allowances functioned as a simple deal sweetener to entice the city’s white-shoe law firms and digital media startups. Instead, brokers and landlords say it is a structural — albeit costly — necessity in today’s deal-making. 

Since 2019, TI allowances across the Manhattan office market have increased 59.2 percent, according to Avison Young data based on 12-month moving averages.

TI allowances peaked in 2024 amid citywide office vacancies. After a substantial dip in 2025, this particular concession is back on the rise, up 7.9 percent year-over-year to $120.80 per square foot in September, according to Avison Young’s data. 

The upticks are documented across every Manhattan submarket and in top-performing asset classes. Yet, rising construction costs and tenant standards, as well as an interest rate hike and surging Treasury yields, have added more pricing pressure to the sought-after perk.

Meanwhile, months of free rent, another popular concession from commercial landlords, fell this year by 8.6 percent compared to 2025, hovering as of October at just over 10 months per lease on average. 

The rise in TI allowances and the dip in free rent diverges from the usual trend, said Vikrant Ghate, Avison Young’s New York City manager for market intelligence. Typically, high interest rates would trigger an uptick in free rent, Ghate said, while capital concessions like TI allowances stabilize or decline.

It appears the strength of Manhattan’s office market over the past 18 months — paired with corporate tenants eager for the best space to lure workers back to the office — helped flip the script. 

“TI may prove to be stickier because landlords still need to deliver the competitive space,” Ghate said, “particularly when they’re asking tenants to make long-term commitments at record-breaking rents.” 

Like so many market dynamics, the spread of tenant allowances in the U.S. office market takes on a K shape. 

“It’s kind of a tale of three cities, from a tenant’s perspective,” said Lindsay Ornstein, co-founder of Open Impact Real Estate. Ornstein separates the state of lease concessions into three buckets: trophy assets, Class A properties, and B and C office buildings. 

The TI allowance rebound this year is particularly concentrated at the top of the office market, where well-capitalized owners can afford extra incentives. Improvements for trophy offices rose 15.8 percent this year, to $130.40 per square foot, according to Avison Young’s data. Trophy tenants typically seek the allowance and contribute their own funds to outfit their high-end needs. 

“If you look at any of these trophy buildings, you’re not going to find an installation that costs less than $400 a square foot,” Ornstein said. “We have many clients who spent $600 to $700 a foot, and we know of clients who’ve spent more.”

TI allowances for Class A office deals increased 9.5 percent year-over-year to $124.20 per square foot on average. 

Older or less desirable buildings in the Class B and C bucket, on the other hand, have seen TI allowances fall 4.3 percent to an average of $103.40 per square foot. 

Free months of rent might be the preference of less well-capitalized owners, or those facing imminent refinancings. Matt Schreck, Savills’ director of research for New York and the tri-state area, provided a scenario of a typical, well-leased building with a stable operating income that still must refinance a maturing loan at a higher borrowing rate.

“That still becomes very challenging, to expect to reinvest more capital into the building in order to secure a refinance, and at the same time to be able to offer concession packages and offer the capital needed to build out space to attract and retain tenants,” Schreck said.

Stretched owners seem to be reducing their overall concessions, rather than swapping one for another. Concession cuts in Class B and C buildings included free rent, too, falling 14.3 percent this year in the steepest drop of any office segments. Landlords who enjoy less maneuverability with lenders for financing TIs would still strongly prefer giving free rent in lieu of TI, according to Ornstein. 

“Some tenants will accept that, and are OK financing their own build-out in exchange for lower face rent over time,” Ornstein

Even a basic build-out today can run over $100 per square foot — a difficult calculus when rents are in the $60s and $70s per square foot.

“By the time you’re done with TI, free rent, commissions, legal and all the other transaction costs, it takes years for them just to break even, let alone make money,” Ornstein said

A more common alternative for these owners is a “refresh allowance,” a perk that allows landlords to fund minor improvements rather than a total overhaul. 

Schreck said the TI strategies available to owners often depend on how much money the owner has.

“Buildings that are backed by owners with the ability to fund a large TI package are in a materially different competitive position than owners that have either balance sheet refinancing or or any sort of liquidity constraints,” Schreck said.

On a geographic level, the Lower Manhattan office submarket charted declines across concessions, with TI allowances dropping 11.5 percent and the number of months of free rent falling 13.8 percent over the year. The downtown submarket has been among the slowest to recover from post-pandemic vacancies, yet residential conversions have removed weaker buildings in the submarket, tightening supply.  

On the other end of the spectrum is Midtown and its trophy offices. Midtown recently became the first major New York market to regain its pre-pandemic availability, according to Colliers’ third-quarter market report, and Class A office rents there reached a new high. TI allowances for trophy space in the hot submarket are up 18.2 percent from 2025, while free rent is down 8.5 percent over the same period, according to Avison Young’s data. 

Far from a desperate bid to attract tenants, the current decline in allowances and uptick in free rent among the best of Manhattan’s office market can be linked to a weakening dependency on cash injections to lure new leases.

“I think landlords are deploying capital elsewhere,” said Oliver Petrovic, Avison Young’s executive director of office leasing. “Whether it’s from an amenity standpoint, modernizing their lobby or building something into their portfolio that could otherwise attract a broader range, outside of that top floor of the building.”

Petrovic added that high borrowing costs also prevent TI allowances from scaling in line with rising rents.

Midtown South has its own unique concession mix at play, thanks to a flood of 2026 leases that recently yielded the submarket’s strongest third quarter of office activity on record, according to Colliers. 

“Most of the tech companies that we’ve seen transacting want landlord turnkeys,” Ornstein said. “They are just growing so fast that they don’t want to devote the time and resources to the build-out.”

These young tenants also sign shorter leases, Ornstein said, which come with smaller concession packages. To account for rising construction costs, landlords in Midtown South and beyond are increasingly offering pre-built spaces, particularly for smaller tenants, rather than providing TI allowances for custom builds.

Olmstead Properties is among those owners that have found success in that pre-built niche. The New York City-based commercial real estate firm has been busy outfitting vacant spaces throughout the city and transforming them into smaller, pre-built office spaces.

“Pre-built space is getting the space leased much faster, and in most cases at a higher number,” said Jonathan Bock, a managing director at Olmstead.

The firm ended 2025 with new Flatiron District office assets at 373 Park Avenue South and 381 Park Avenue South, and has since implemented pre-built programs in both. Over 110,000 square feet of pre-built office space has now been leased across the two assets, according to Steven Marvin, executive managing director and partner at Olmstead. 

“We do find ourselves in a great position, and it’s becoming a bit of a bidding war out there,” Marvin said.

The firm is repeating its pre-built program at 180 Varick Street in Hudson Square and the newly acquired 19 West 44th Street in Midtown, Marvin said. 

“At the end of the day, we like to build for tenants,” Bock said. “So we don’t necessarily give them a TI allowance. If for some reason they want to take on the build-out, we certainly can structure it that way, but we’re really taking on that burden throughout our portfolio. We try to keep the other concessions limited, but it’s all subject to the situation.”

He added that those extra concessions are usually being implemented as free rent.

Beyond New York City, less competitive markets like Boston and Philadelphia saw TI allowances broadly increase between 2024 and 2025, according to an October 2025 report by Savills and Compstak. Like the Big Apple’s cohort of Class B and C owners, office operators in outer markets were under pressure to counteract slow office space uptake with higher TI allowances, according to Savills’ Schreck. High interest rates and a reported wall of maturities add to owners’ headaches, as they face down refinancing while simultaneously funding tenant improvements.

Concession packages in Manhattan are still in a post-2024 cooldown, at least for now, but a material shift in macroeconomic conditions would be required to shake TI allowances loose from the office deal-making mix. 

“I don’t see it going away anytime soon,” Ornstein said.

Emily Davis can be reached at edavis@commercialobserver.com.