Deepened Landlord Concessions Continue to Lower Effective Rent in Most Major US Cities, but Office Tenants in Tech-Centric Markets Face Less Favorable Terms, Savills Studley Report Shows

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Newly Varied National Picture Shows Contrast Between Old and New Markets as NYC, DC See Unprecedented Improvement Allowances While Rents Rise in Seattle, Atlanta

NEW YORK (April 30, 2018) – With extensive new construction underway and large quantities of older space flooding the office market, U.S. landlords in major cities like New York and Washington, DC are continuing to sweeten their deals by offering tenants free rent, remodeling allowances and state-of-the-art amenities, effectively reducing office rents. At the same time, a different trend is emerging in tech-centric cities, where competition for talent and amenity-rich space is fierce, according to the 2018 Effective Rent Index from Savills Studley.

This marks a clear separation between gateway markets dependent upon traditional corporate occupiers for space demand and those fueled by dynamic expansion among tech and creative sector firms.

The Effective Rent Index helps businesses get a clearer picture of their operating costs by taking an in depth look at their rental expenses. The annual report tracks what tenants actually pay for top Class A office space (tenant effective rent) and what landlords ultimately walk away with (landlord effective rent).

“Compared to prior years, 2017 showed a much greater variance due to the emergence of the tech industry in select cities,” said Keith DeCoster, Savills Studley’s Director of U.S. Real Estate Analytics. “In tech centers such as Seattle, the Bay Area of Northern California, Boston and Austin, companies are pursuing talent and space to house them almost with less concern for the cost. In contrast, traditional professional/business services firms and law firms are still keeping an eye on out-of-pocket expenditures. Fortunately, ample supply in many of the gateway markets is compelling landlords to offer record concessions, making conditions ideal for tenants.”

According to the index concession packages (free rent and tenant improvement allowances) increased in more than half of the markets profiled in the report. Packages rose significantly in markets such as:

  • Downtown Manhattan (24%)
  • Washington, DC (21.7%)
  • Denver (16.7%)
  • Orange County (12.3%)
  • Houston (12%)
  • Midtown Manhattan (8.5%)
  • Phoenix (7.4%)
  • Chicago (6.6%)

Tenants in several of these markets benefitted from lower effective rents, including:

  • Midtown Manhattan (-11.2%)
  • Northern New Jersey (-9.0%)
  • Downtown Manhattan (-7.8%)
  • Denver (-2.8%)
  • Chicago (-2.6%)
  • Washington, DC (-1.5%)
  • Houston (-0.1%)

Bucking the national trend, concessions are down in cities where tech companies and tech jobs make up a large portion of the market. In these tech cities, demand outpaces supply and tenants are willing to pay higher rents for workplaces that will help them win the war for talent. Cities with shrinking concession packages include:

  • Atlanta (-4.1%)
  • Seattle (-3.1%)
  • Sunnyvale/Santa Clara (-3.2%)
  • Austin (-2.6%)
  • San Jose (-1.4%)

Effective rents are also rising in these same cities as landlords increase their prices where tech firms are expanding:

  • Atlanta (12.7%)
  • Seattle (9.7%)
  • Austin (5.9%)
  • San Jose (4.7%)
  • Sunnyvale/Santa Clara (3.8%)

“Increased concession packages and reduced effective rents across the country create an opportunity for companies, to invest in modern, amenitized workplaces that lure the best talent,” said Mitch Steir, CEO and Chairman of Savills Studley. “In tighter tech markets, the office perks are a requirement, and seizing on premium space becomes a competitive challenge. Only with the right market intelligence and strategy can tenants reap maximum value from lease negotiations.”

Markets covered in the report are: Atlanta, Chicago, Dallas, Denver, Downtown Los Angeles, Downtown Manhattan, Houston, Miami, Midtown Manhattan, Northern New Jersey, Northern Virginia, Orange County, Philadelphia, Phoenix, San Diego, San Francisco, Seattle, Silicon Valley, Tampa Bay, Washington, DC and Los Angeles.

About Savills Studley
Savills Studley is the leading commercial real estate services firm specializing in tenant representation. Founded in 1954, the firm pioneered the conflict-free business model of representing only tenants in their commercial real estate transactions. Today, supported by high quality market research and in-depth analysis, Savills Studley provides strategic real estate solutions to organizations across all industries. The firm’s comprehensive commercial real estate platform includes brokerage, project management, capital markets, consulting and corporate services. With 31 offices in the U.S. and Canada, and a heritage of innovation, Savills Studley is well known for tenacious client advocacy and exceptional service.

The firm is part of London-headquartered Savills plc, the premier global real estate service provider with over 35,000 professionals and over 700 locations around the world. Savills plc is listed on the London Stock Exchange (SVS.L).

For more information, please visit and follow us on LinkedIn and Twitter @SavillsStudley.

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