A recent analysis from CBRE indicates that the value of office rental market tenant concessions, such as free rent for many months, started to decrease in America in the first half of 2024 and may be approaching its peak.

The average period of free rent offered in new office leases decreased to 9.0 months in the first half of this year from 9.6 months in 2023, following four years of rises.

Similarly, the average tenant improvement allowance—a sum of money provided to renters by building owners so they can equip their spaces—fell between the first half of this year and 2023, falling by about 3% to $94.69 per square foot from $97.55 in 2023. That drop followed four years of growth, just like the decline in free rent.

The results of CBRE's examination of 3,900 lease transactions—including 393 this year alone—in 12 significant U.S. markets since 2019 were used to make these conclusions.

When combined with the cost of the lease, these tenant concessions equal the effective rent—the difference between the rent that the occupier actually pays and the rent that building owners seek for a certain area. Rising concessions have resulted in a decrease in effective rent during the past four years.

Lower-class buildings are more susceptible to this influence since they frequently have to offer bigger concessions to attract tenants than do higher-class structures. According to CBRE's data, effective rents have climbed by 2.4% for top-tier buildings while they have decreased by 1.2% for lower-tier buildings over the previous year.

Director of Americas Office Research at CBRE, Jessica Morin, reported that some property owners were using less expensive concessions to draw in tenants.  According to her, this can involve offering shared services like conference rooms that can be reserved in advance or more accommodating conditions for growing or shrinking their office space. Lowering base rent is a possibility that a lot of building owners will probably take into consideration. For the first year of a lease, base rent is the beginning rent.

The following 12 markets are included in CBRE's analysis: Manhattan, Boston, Chicago, Dallas/Fort Worth, Denver, Philadelphia, San Francisco, Seattle, Washington, D.C.; Houston, Los Angeles, and Texas.