FALLING RENTS AND INCREASING INCENTIVES TO ATTRACT TENANTS

The Wall Street Journal reports,

“Office buildings often don’t show financial strain in the early stages of a downturn because they are occupied by tenants who have signed long-term leases. As long as the tenants stay in business, their landlords can even see revenue increases because of escalation clauses in their contracts.

The pain starts hitting when leases expire. In tough markets, landlords typically have to spend a lot to retain or attract tenants through brokerage commissions or incentives such as free rent or interior construction. The cost of attracting tenants is a factor that is cutting into funds from operations.”