Commercial real estate sector recovery driven by incentives

Office rents have more or less recovered from the huge slump that occurred at the start of the COVID-19 pandemic.

These days, companies are willing to pay high-dollar rents and sign long leases, but it’s not because everyone has rushed back to work all of a sudden. With the Omicron variant of COVID-19 still a cause for concern, commercial property owners have been enticing tenants with incentives such as cash gifts and months’ of free rent.

Never have the incentives and offerings for office space been so commonplace in the urban office market, real estate brokers told The Wall Street Journal.

Office building owners are not just offering free months of rent, but they may offer to pay moving expenses and customized alterations to spaces in order to sign new tenants. But in return, tenants are being charged higher rents. Ensuring office rents stay high is also crucial to creating confidence in the sector, agents say.

“For many office landlords, the pandemic is a lethal threat that requires cutting whatever deals it takes to survive as vacancy rates reach levels not seen in decades,” The Wall Street Journal reports. “Paying money to inflate rents helps keep building prices high despite the rise of remote work, meaning landlords can expect to profit when they sell a building or take out a mortgage.”

Ever since the pandemic began, hybrid and remote work have reduced the demand for office space. To avoid rents from falling, building owners are taking steps to keep their buildings leased. They may be willing to agree to longer rent-free periods to do that too.

For example, Roku Inc. is leasing a 240,000-square-foot office near Times Square for more than $90 a square foot. But the company is receiving some incentives too, like more than $30 million for construction work and a rent-free period of 18 to 24 months, The Wall Street Journal reports.