Tenant Improvement cost exceeded rent increases

A number of the major commercial brokerage companies reported a spike in the cost of office tenant improvements. In some regions the tenant improvement costs are rising much faster than the rental rates. Increases from 10 to 21% are hammering office landlords. “Key factors affecting the sudden rise in TI allowances include: 1) a significant increase in new inventory that impacted supply and demand dynamics nationally; 2) flight to quality, with tenants consistently moving to higher-quality offices to attract and retain talent; 3) a significant rise in construction costs by 15.5 percent; and 3) landlords’ attempts to offset peak rents with larger TI packages to sweeten leasing deals.” (NREI, July 17, 2018)