Looking to lease space in the District? You might want to remember Tom Cruise’s line from “Jerry Maguire”: “Show me the money.”
Whether it’s free rent, tenant improvements or other perks, landlords are offering more concessions to keep their tenants or attract new ones than at any time in the past, according to tenant representative Studley Inc.
How generous are they? The concession package landlords are willing to offer their tenants came in at around $136 per square foot in 2013, according to the brokerage’s annual Studley Effective Rent Index. That’s up 13.5 percent from $120 in 2012 and way up from $55 in 2003.
Setting aside that Studley represents tenants rather than landlords, and thus has an interest in seeing that the market favors its clients over their landlords, it shouldn’t come as much of a surprise to anyone paying attention to D.C.’s office market that a confluence of factors has led to some nervous landlords. Federal agencies are being forced by Congress and the Obama administration to cut down on their space needs and the biggest private consumers of leased office space, law firms, are seeking out newer, more efficient buildings that will allow them to reduce their footprints, as well as their real estate bills. All that means a lot of empty space that needs to get filled and a lot of landlords hungry for companies to fill it.
Studley Executive Vice President Tom Fulcher said concession packages have gradually inched up from the $60-per-square-foot range in the early 2000’s and has become increasingly generous over the past two years as landlords were faced with increasing vacancy rates and space-conscious tenants.
Months of free rent and improvement costs are two big factors landlords can offer tenants before having to lower their actual rates, a step many are loathe to take because it can bring down their properties’ market value and affect their ability to refinance or sell their buildings.
“There’s pressure to keep the face rents where they are in terms of sales or refinancing,” Fulcher said.
So what’s the bottom line for tenants? Studley puts the tenant effective rent, a measure that includes the total rent minus concessions, at just shy of $46 per square foot in the District. That’s down only about 4.2 percent from 2012 and from $43.11 in 2003. Keep in mind, that includes outside costs passed on to the tenant including real estate taxes, electricity and other operating expenses.