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Higher tenant improvement costs pin office rents to the ceiling

Office landlords cannot afford to lose money building out the type of new office suites tenants demand
Investors buying office properties at a low basis have driven office rents down in San Francisco, shown here, and some other hard-hit markets, but most office owners have held the line on asking rents, at least nominally. (CoStar)
Investors buying office properties at a low basis have driven office rents down in San Francisco, shown here, and some other hard-hit markets, but most office owners have held the line on asking rents, at least nominally. (CoStar)
CoStar Analytics
October 9, 2024 | 5:46 P.M.

For several years now, the office market has found itself in an unusual, if not unprecedented, situation. Despite record office vacancy, the price of leasing space has kept moving up. How can this be? In a market of flagging demand, why are office rents rising? The short answer is that, financially speaking, they must.

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