Many tenants are pleasantly surprised to learn that they can obtain a free rent period (rent concession) when leasing a new space or renewing their lease. Usually free rent is granted and the tenant just accepts the discount and goes on happily with their transaction. However, understanding why landlords offer free rent can help a tenant navigate the process to their benefit. So why the free rent? Really, there are many reasons that landlords offer free rent but it this article, we will discuss the three main reasons.
Cost of Moving
Landlords understand that the cost of moving can be a large expense, especially for larger businesses. Tenants need to pay for the move, purchase new furniture/appliances, and set up their IT/computers to get back to operating normally in a short amount of time. There is both the actual cost of the move and occasionally the cost of lost revenue during this period. Landlords recognize this and realize that tenants might choose to stay in their current location, even if it’s not perfect, to avoid these costs/hassles. To counter this, and encourage tenant turnover, landlords offer free rent to ease the cost of moving.
Leasing Incentive (Industry trends)
With innumerable buildings in NYC there is usually at least some competition at every size point. From shared spaces in Office Centers to 10,000SF private offices (and up) the market is competitive for both landlords and tenants. For this reason, many landlords offer free rent as it has become somewhat of a trend to stay competitive. If one landlord offers free rent regardless of the pragmatic rationale, it would be wise for the competing landlord to offer free rent as well to stay in the game.
Construction is a double edged sword when it comes to free rent. If a landlord is willing to do the work, usually this will have a direct negative correlation on your free rent. If the tenant will be doing the work themselves, this will usually warrant the case for a longer free rent period. This is to negate the cost of the tenant doing the work themselves.
As you can see, landlords do not usually offer free rent because they are feeling generous or because tenants are entitled to it. However, industry trends, the cost of moving, and construction costs can both influence whether a tenant can be entitled to free rent and the amount of free rent.
– David Goldberg, Managing Director