Free rent, moving allowances, signing bonuses and big broker
commissions - including an offer of a Porsche - are a few of the
numerous incentives landlords are dangling before prospective tenants
and their agents in many markets where demand for office and warehouse
space remains weak.
Office rents will be
especially soft this year in San Francisco, Boston, Atlanta, Seattle and
Denver because of the dot-com collapse. But that doesn't mean
landlords in other cities can gloat. Demand is squishy in most
places - especially the suburbs - and is expected to stay that way until
the economy revs up later this year.
Free rent is the biggest inducement offered to recruit new tenants in
high-vacancy office buildings. It may tip the scale for a
potential customer that can pick and choose from a dozen
buildings. "Let's say you've got six months to go on your
lease. You might be willing to move in early if the new landlord
offers you several months of free rent," says Andrew Ratner of
Cushman & Wakefield in Los Angeles. Many building owners will
take this desperate measure to avoid lowering monthly rents.
Landlords fear that if they were to lower rents, existing tenants would
demand equal treatment. Lower rental rates also reduce the value
of the building in the eyes of bankers and potential buyers.
There are other variations
of free rent. One is a step increase, in which rents begin lower
than the listed rate but may be adjusted later by mutual
agreement. Another is one or two months of free rent at the end of
each year of a contract.
are another incentive, popular especially in areas where high-tech
tenants are falling by the wayside. The building owner promises to
pony up for renovations, furniture or internal wiring, depending on the
business owner's needs. And in San Francisco, where dozens of dot-coms
have gone out of business, landlords are able to provide fully wired
offices with furniture, computers and furnishings acquired from the
Among other incentives:
- Bigger commissions
for brokers. Sometimes their fees are raised from 5% to 10% of the
deal, or they may get golf trips to Palm Springs or Florida.
In Seattle, where vacancy rates have risen from 2% in mid-2000 to
the midteens today, a landlord offered brokers their choice of a
2002 Porsche Boxster or $50,000 in cash for filling a three-story
- Lease assumptions.
"We've seen this for the first time in 10 years," says Kip
Spencer of officespace.com. "A company fills a vacant
space, and the landlord assumes the existing lease."
allowances. The recruiting landlord pays all or part of the
certificates. $100 from Nordstrom, simply for touring an
space. At no charge, space is set aside for the tenant's
bonuses. Called cash allowances, they may include $50,000 to
sign up for the next 10 years.