Landlord financial contributions for tenant improvements (TI) have fundamentally shifted in the New York office market since the onset of the pandemic. What was once regarded purely as a negotiating sweetener for renowned law firms or digital companies has evolved into a standard structural requirement in lease agreements. According to data from real estate services firm Avison Young, TI allowances in Manhattan have climbed by 59.2 per cent since 2019. Following a peak in 2024 and an interim dip in 2025, the market recorded a 7.9 per cent year-on-year increase in September 2026 to an average of $120.80 per square foot.
At the same time, the duration of rent-free periods offered by landlords as an additional incentive decreased. These fell by 8.6 per cent compared to 2025 and stood at an average of just over ten months per lease in October. Vikrant Ghate, head of market research at Avison Young in New York City, explained that this opposing movement diverges from the typical pattern. During high-interest-rate phases, rent-free periods usually expand, while capital-intensive cash concessions tend to stagnate. However, strong demand for prime space over the past 18 months has reversed this dynamic, as owners must provide competitive office space to secure tenants on long-term leases at record rents.
K-shaped trend in market structure
The distribution of concessions is unfolding along a K-shaped divide. Lindsay Ornstein, co-founder of Open Impact Real Estate, divides market activity into three segments: trophy assets, Class A office buildings, and older Class B and C properties. The rise in fit-out allowances is concentrated primarily in the top market segment, where well-capitalised landlords possess the necessary resources. Ornstein highlighted that high-quality fit-outs in trophy buildings can rarely be achieved for less than $400 per square foot, and many clients are investing between $600 and $700 per square foot or more.
- —Trophy offices: 15.8 per cent increase in TI allowances to $130.40 per square foot
- —Class A: 9.5 per cent year-on-year increase to an average of $124.20 per square foot
- —Class B and C: 4.3 per cent decrease to an average value of $103.40 per square foot
Refinancing pressure on older stock
For less well-capitalised owners or properties facing upcoming refinancings, providing substantial cash capital presents a considerable hurdle. Matt Schreck, research director at Savills for New York and the Tri-State region, explained that even fully let properties with stable earnings face the challenge of refinancing maturing loans at higher interest rates. In this setting, the liquidity required to simultaneously fund large fit-out packages for existing or new occupiers is often lacking. Consequently, rent-free months also dropped sharply in Class B and C assets, falling by 14.3 per cent.
With even a basic standard fit-out now costing upwards of $100 per square foot, owners of buildings achieving rents in the $60 to $70 per square foot range face mathematical bottlenecks. Many landlords are therefore turning to flat-rate refresh allowances for minor refurbishments instead. At the submarket level, Lower Manhattan recorded broad-based declines across concessions: TI allowances dropped by 11.5 per cent and rent-free periods by 13.8 per cent, as residential conversions gradually withdraw weaker office stock from the market.
