New Data Shows Tenant Effective Rent Drops 20% In Houston
New data from Savills Studley shows tenant effective office rent closed 2016 down 20% from the year before. The metric focuses on the true cost of occupancy based on actual taking rents rather than on average asking rents.
Total rent fell by 4.4% to $43.68. Net rent dropped 7.1% to $27.65. Operating expenses fell by 1%, while real estate taxes rose by 2.2%. The value of concession packages spiked by 20.1% to $86.47. The combined math is a 20.3% tenant effective rent decline and a 36.3% landlord effective rent decline.
Deal volume also declined dramatically to 8.8M SF, well below the long-term average of 12.2M SF. Weak leasing combined with a spike in sublease space forced landlords to make adjustments. With anemic leasing and plenty of options, companies negotiating deals will continue to be in the driver's seat. Expect to see continued extended free rent periods and generous improvement allowances.