Manhattan tenant improvement (TI) allowances \u2014 costs that commercial landlords cover for tenants to remodel spaces \u2014 have dramatically evolved since the pandemic.\u00a0<\/p>\n
Gone are the days in which these allowances functioned as a simple deal sweetener to entice the city\u2019s white-shoe law firms and digital media startups. Instead, brokers and landlords say it is a structural \u2014 albeit costly \u2014 necessity in today\u2019s deal-making.\u00a0<\/p>\n
SEE ALSO: Kayla Lee of Serhant: 5 Questions<\/a><\/p>\n Since 2019, TI allowances across the Manhattan office market have increased 59.2 percent, according to Avison Young<\/a> data based on 12-month moving averages.<\/p>\n TI allowances peaked in 2024 amid citywide office vacancies. After a substantial dip in 2025, this particular concession is back on the rise, up 7.9 percent year-over-year to $120.80 per square foot in September, according to Avison Young\u2019s data.\u00a0<\/p>\n The upticks are documented across every Manhattan submarket and in top-performing asset classes. Yet, rising construction costs and tenant standards, as well as an interest rate hike<\/a> and surging Treasury yields<\/a>, have added more pricing pressure to the sought-after perk.<\/p>\n Meanwhile, months of free rent, another popular concession from commercial landlords, fell this year by 8.6 percent compared to 2025, hovering as of October at just over 10 months per lease on average.\u00a0<\/p>\n The rise in TI allowances and the dip in free rent diverges from the usual trend, said Vikrant Ghate, Avison Young\u2019s New York City manager for market intelligence. Typically, high interest rates would trigger an uptick in free rent, Ghate said, while capital concessions like TI allowances stabilize or decline.<\/p>\n It appears the strength of Manhattan\u2019s office market<\/a> over the past 18 months \u2014 paired with corporate tenants eager for the best space to lure workers back to the office \u2014 helped flip the script.\u00a0<\/p>\n \u201cTI may prove to be stickier because landlords still need to deliver the competitive space,\u201d Ghate said, \u201cparticularly when they\u2019re asking tenants to make long-term commitments at record-breaking rents.\u201d\u00a0<\/p>\n Like so many market dynamics, the spread of tenant allowances in the U.S. office market takes on a K shape.\u00a0<\/p>\n \u201cIt\u2019s kind of a tale of three cities, from a tenant\u2019s perspective,\u201d said Lindsay Ornstein, co-founder of Open Impact Real Estate<\/a>. Ornstein separates the state of lease concessions into three buckets: trophy assets, Class A properties, and B and C office buildings.\u00a0<\/p>\n The TI allowance rebound this year is particularly concentrated at the top of the office market, where well-capitalized owners can afford extra incentives. Improvements for trophy offices rose 15.8 percent this year, to $130.40 per square foot, according to Avison Young\u2019s data. Trophy tenants typically seek the allowance and contribute their own funds to outfit their high-end needs.\u00a0<\/p>\n \u201cIf you look at any of these trophy buildings, you\u2019re not going to find an installation that costs less than $400 a square foot,\u201d Ornstein said. \u201cWe have many clients who spent $600 to $700 a foot, and we know of clients who\u2019ve spent more.\u201d<\/p>\n TI allowances for Class A office deals increased 9.5 percent year-over-year to $124.20 per square foot on average.\u00a0<\/p>\n Older or less desirable buildings in the Class B and C bucket, on the other hand, have seen TI allowances fall 4.3 percent to an average of $103.40 per square foot.\u00a0<\/p>\n Free months of rent might be the preference of less well-capitalized owners, or those facing imminent refinancings. Matt Schreck, Savills<\/a>\u2019 director of research for New York and the tri-state area, provided a scenario of a typical, well-leased building with a stable operating income that still must refinance a maturing loan at a higher borrowing rate.<\/p>\n \u201cThat still becomes very challenging, to expect to reinvest more capital into the building in order to secure a refinance, and at the same time to be able to offer concession packages and offer the capital needed to build out space to attract and retain tenants,\u201d Schreck said.<\/p>\n Stretched owners seem to be reducing their overall concessions, rather than swapping one for another. Concession cuts in Class B and C buildings included free rent, too, falling 14.3 percent this year in the steepest drop of any office segments. Landlords who enjoy less maneuverability with lenders for financing TIs would still strongly prefer giving free rent in lieu of TI, according to Ornstein.\u00a0<\/p>\n \u201cSome tenants will accept that, and are OK financing their own build-out in exchange for lower face rent over time,\u201d Ornstein<\/p>\n Even a basic build-out today can run over $100 per square foot \u2014 a difficult calculus when rents are in the $60s and $70s per square foot.<\/p>\n \u201cBy the time you\u2019re done with TI, free rent, commissions, legal and all the other transaction costs, it takes years for them just to break even, let alone make money,\u201d Ornstein said<\/p>\n A more common alternative for these owners is a \u201crefresh allowance,\u201d a perk that allows landlords to fund minor improvements rather than a total overhaul.\u00a0<\/p>\n Schreck said the TI strategies available to owners often depend on how much money the owner has.<\/p>\n \u201cBuildings that are backed by owners with the ability to fund a large TI package are in a materially different competitive position than owners that have either balance sheet refinancing or or any sort of liquidity constraints,\u201d Schreck said.<\/p>\n On a geographic level, the Lower Manhattan office submarket charted declines across concessions, with TI allowances dropping 11.5 percent and the number of months of free rent falling 13.8 percent over the year. The downtown submarket has been among the slowest to recover from post-pandemic vacancies, yet residential conversions have removed weaker buildings in the submarket, tightening supply.\u00a0\u00a0<\/p>\n On the other end of the spectrum is Midtown and its trophy offices. Midtown recently became the first major New York market to regain its pre-pandemic availability, according to Colliers<\/a>\u2019 third-quarter market report, and Class A office rents there reached a new high. TI allowances for trophy space in the hot submarket are up 18.2 percent from 2025, while free rent is down 8.5 percent over the same period, according to Avison Young\u2019s data.\u00a0<\/p>\n Far from a desperate bid to attract tenants, the current decline in allowances and uptick in free rent among the best of Manhattan\u2019s office market can be linked to a weakening dependency on cash injections to lure new leases.<\/p>\n \u201cI think landlords are deploying capital elsewhere,\u201d said Oliver Petrovic, Avison Young\u2019s executive director of office leasing. \u201cWhether it\u2019s from an amenity standpoint, modernizing their lobby or building something into their portfolio that could otherwise attract a broader range, outside of that top floor of the building.\u201d<\/p>\n Petrovic added that high borrowing costs also prevent TI allowances from scaling in line with rising rents.<\/p>\n Midtown South has its own unique concession mix at play, thanks to a flood of 2026 leases that recently yielded the submarket\u2019s strongest third quarter of office activity on record, according to Colliers.\u00a0<\/p>\n \u201cMost of the tech companies that we\u2019ve seen transacting want landlord turnkeys,\u201d Ornstein said. \u201cThey are just growing so fast that they don\u2019t want to devote the time and resources to the build-out.\u201d<\/p>\n These young tenants also sign shorter leases, Ornstein said, which come with smaller concession packages. To account for rising construction costs, landlords in Midtown South and beyond are increasingly offering pre-built spaces, particularly for smaller tenants, rather than providing TI allowances for custom builds.<\/p>\n Olmstead Properties<\/a> is among those owners that have found success in that pre-built niche. The New York City-based commercial real estate firm has been busy outfitting vacant spaces throughout the city and transforming them into smaller, pre-built office spaces.<\/p>\n \u201cPre-built space is getting the space leased much faster, and in most cases at a higher number,\u201d said Jonathan Bock, a managing director at Olmstead.<\/p>\n The firm ended 2025 with new Flatiron District office assets<\/a> at 373 Park Avenue South and 381 Park Avenue South, and has since implemented pre-built programs in both. Over 110,000 square feet of pre-built office space has now been leased across the two assets, according to Steven Marvin, executive managing director and partner at Olmstead.\u00a0<\/p>\n \u201cWe do find ourselves in a great position, and it\u2019s becoming a bit of a bidding war out there,\u201d Marvin said.<\/p>\n The firm is repeating its pre-built program at 180 Varick Street in Hudson Square and the newly acquired 19 West 44th Street<\/a> in Midtown, Marvin said.\u00a0<\/p>\n \u201cAt the end of the day, we like to build for tenants,\u201d Bock said. \u201cSo we don\u2019t necessarily give them a TI allowance. If for some reason they want to take on the build-out, we certainly can structure it that way, but we\u2019re really taking on that burden throughout our portfolio. We try to keep the other concessions limited, but it\u2019s all subject to the situation.\u201d<\/p>\n He added that those extra concessions are usually being implemented as free rent.<\/p>\n Beyond New York City, less competitive markets like Boston and Philadelphia saw TI allowances broadly increase between 2024 and 2025, according to an October 2025 report<\/a> by Savills and Compstak. Like the Big Apple\u2019s cohort of Class B and C owners, office operators in outer markets were under pressure to counteract slow office space uptake with higher TI allowances, according to Savills\u2019 Schreck. High interest rates and a reported wall of maturities add to owners\u2019 headaches, as they face down refinancing while simultaneously funding tenant improvements.<\/p>\n Concession packages in Manhattan are still in a post-2024 cooldown, at least for now, but a material shift in macroeconomic conditions would be required to shake TI allowances loose from the office deal-making mix.\u00a0<\/p>\n \u201cI don\u2019t see it going away anytime soon,\u201d Ornstein said.<\/p>\n