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DC MarketView: Checking in on Concessions

As evidenced in Q2 statistics, DC has seen a substantial pullback in leasing activity through the first half of the year. At mid-year, the District had seen just 3.9 million square feet (msf) of total year-to-date leasing activity, a 43% decrease from the same period last year.  So what does this mean for tenants in the market now? In terms of leverage, it appears to be a good thing. The lull in activity coupled with increasing options – both new and existing – has led to more favorable terms on the tenant’s side. Looking at new, long-term (10 years or more) leases signed in class A buildings through the second quarter, trends are indicating a favorable increase in both free rent and improvement allowances in just a year’s time. 

Concessions Increase 5% Over One Year

Looking at representative sets of more than 20 new, long-term, class A leases signed in the first two quarters of 2016 and 2017, concessions have increased by 5% for both tenant improvement (TI) allowance and free rent packages. These sets included both new and existing buildings, but no sublease or renewal deals.

The average TI allowance increased from $96.47 psf in 2016 to $101.74 psf in 2017. Average free rent increased from 13.9 months in 2016 to 14.6 months so far in 2017.  When looking at average term, however, there was less of a change with average length increasing to 11.7 years on average in 2017 from 11.3 in 2016 (looking just at leases over 10 years in term). 

Looking at the five-year picture, the trend to tenant favorability is even more marked. Compared to deals signed in the first half of 2012, the current average TI allowance has increased by 7% from $95.11 psf and free rent has seen an 18% increase from 12.4 months average – all with a 9% decrease in average term length.  



One and Five Year Change in Concessions on Long-Term Class A Deals



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Sarah Dreyer

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