In 2021, commercial and office leasing developments in downtown Chicago have been intriguing, and to an extent, what is happening in the Chicago market is being echoed in the suburbs. If the leasing patterns that have extended from 2020 into 2021 seem to indicate a theme, it is that this is, and for a time will be, a “tenant’s market.”
Under the right lease terms, this tenant-favored environment can present mutual benefits for both sides of an agreement – for landlords, optimism, and for tenants, opportunities. Tenants looking to sign a new lease have the opportunity to use their commitment to leverage beneficial concessions from property owners, and owners with the capacity for creative lease terms can be optimistic that their concessions may bring tenants back into their vacant spaces. If they have not done so already, leasing parties may want to begin considering leasing incentives and concessions as enticing options to secure commitments.
In a tenant’s market, landlords should take proactive measures to present their properties as more attractive alternatives than tenants’ current spaces, or increasingly, permanent remote setups. In addition to promoting robust health and safety measures at their properties so that tenants and guests feel safe, lessors should consider tailoring concession packages toward prospective tenants. Some examples include: rent abatements at the beginning or end of lease terms, paying for lessees’ moving or relocation expenses, and increased tenant improvement allotments, which can ensure spaces are updated and that tenants have more flexibility to design workspaces that suit their remote and in-office needs.
Landlords may have feelings of hesitancy or reluctance to concede rent or funds to tenants and instead would prefer the “wait and see” approach to turn lights back on at their properties. However, market research is showing that while lease signings have increased in some areas and for some property types, nearly 20% of downtown space has remained vacant this year. Research is also showing that where signings have increased, concession packages have also increased by double digits when compared with pre-pandemic figures. Each property owner has to think of their bottom lines, but when prospective tenants are not rushing to get back into workplaces, owners may find that offering enticing lease terms may bring about the changes they want to see in the market.
Tenants have discretion over how, when and whether to bring employees back into their workspaces, and if they decide to sign a new lease, they can take advantage of the current climate to negotiate concessions from landlords. Free-rent months, increases in tenant improvements, moving/relocation expenses, and improved building amenities are some of the incentives that are being offered to attract businesses that are ready to commit to new leases. Tenants should feel confident that in some cases these are not unreasonable terms to discuss when negotiating a lease.
Ready to negotiate a commercial lease? If so, contact a Chuhak & Tecson Real Estate attorney who may help secure options that you may not be aware of.
Client alert authored by Joshua P. Murrell (312 855 4365), Associate.
This Chuhak & Tecson, P.C. communication is intended only to provide information regarding developments in the law and information of general interest. It is not intended to constitute advice regarding legal problems and should not be relied upon as such.
