The Shift in Who Pays
The traditional model—where tenants managed their own buildouts with a cash allowance—has mostly disappeared in New York, per the Commercial Observer. Today, landlords are expected to fully fund and execute the work. As Michael Cohen of Williams Equities puts it, “The days of signing a lease and handing a tenant cash… are over.”
Landlords Take the Lead
Instead of just funding improvements, owners now manage the entire buildout process. Construction firms like Phase 3 Interiors say that 90% of their current work is for landlords, not tenants. This reflects a dramatic shift in power. Tenants now have many options, and landlords must remove barriers to leasing.
High Costs, Tighter Margins
Buildout expenses rose 14% between 2022 and 2023, reaching $213 PSF, according to Cushman & Wakefield. Although prices have stabilized, costs remain high due to inflation, labor shortages, and supply chain delays. Meanwhile, in Class A properties, landlords are offering significant concessions just to stay competitive.
Why This Matters
Short-term leases paired with long-term investments are now common. As Elizabeth Hart of Newmark notes, landlords must think beyond the current lease. Improvements made today may benefit the next tenant and ultimately raise the building’s overall value.
Market Implications
Due to rising interest rates, some landlords hesitate to invest heavily in improvements. However, many now see turnkey spaces as essential for securing leases. The right upgrades, done with flexibility in mind, can help retain tenants and reduce future vacancy risk.
Looking Ahead
While construction costs have stabilized, landlords still face pressure to differentiate their buildings. Companies want high-quality space that supports collaboration and branding. Therefore, the demand for fully built-out, move-in-ready offices is likely to persist.
Bottom Line
New York landlords are adapting to a tenant-driven market. By taking on the full responsibility for buildouts, they are positioning their properties to stay competitive, fill vacancies faster, and meet evolving tenant expectations.
Reference: https://www.credaily.com/briefs/tenant-buildouts-reshape-nyc-office-leasing-strategy/