Why Commercial Landlords Will Give You Months of Free Office Rent

Across the U.S., just 2 in 5 white-collar employees make it to their desks on any given day. Office vacancies are at 16%, and in many cities they’ve doubled in the past two years. And yet it’s not uncommon for bidding wars to break out over commercial real estate, at least for the best properties. What gives? “It’s a tale of two cities,” says Gabi Koshgarian, chief operations officer of real estate brokerage Vicus Partners in New York. “The supernice offices are getting rented by superfunded fintechs.” Perfectly acceptable—but less flashy—spaces, she says, “are sitting stagnant, and you can get them for a steal.”

The pandemic forced many companies to abandon their offices midlease, leaving behind fully furnished, wired spaces renovated in the past few years on seven-figure budgets. At the same time, executives say plush digs can attract talent, boosting demand for “Class A” buildings—techy, new, high-end—and firing up competition in the normally muted sublease market. Landlords of Class B and Class C buildings have been forced to offer sweeteners such as free rent (a month or two for every year of the lease), funding for renovations, and such extras as parking or lobby accommodations. Many will also throw in a Covid-19 clause, which defers rent in the event of new lockdowns.