Office landlords waive rent to sign tenants; $600M NYC rental tower up for sale

March 10, 2023

S&P Global Market Intelligence offers our top picks of real estate news stories published throughout the week.

Office landlords are offering free rent for longer periods along with other perks to attract tenants, The Wall Street Journal reported.

In the top office deals in New York in 2022, tenants got 7% of the lease term free of rent, up from 3% in 2019, the publication reported, citing CompStak. In San Francisco, the rent-free period was at 6% of the tenure, or more than twice since before the pandemic.

Landlords have also given higher improvement allowances to tenants compared to 2019, according to CBRE.

According to the publication, building owners turn to perks instead of cutting rent, in part because the latter could negatively impact the value of an entire office block.

The national office vacancy rate in the U.S. is expected to peak at 13.8% in the second quarter of 2024 before gradually improving, BMO Capital Markets analyst John Kim said in a March 3 research note, citing CoStar. The vacancy rate is at an all time high of 12.9%.

CHART OF THE WEEK: Hotel REITs post strong earnings in Q4'22

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Almost all of the U.S. hotel real estate investment trusts posted year-over-year gains in operating funds from operations and recurring EBITDA for the fourth quarter of 2022, according to an S&P Global Market Intelligence analysis.

Hotel REIT executives are optimistic that the momentum will continue in 2023 as signs of weakness have yet to emerge in the sector.

As of March 6, the Dow Jones U.S. Real Estate Hotels Index is up 10.9% for the year, the second-biggest gain for any Dow Jones U.S. real estate sector index after self-storage.

Property trades

* Realty Income Corp. is acquiring up to 415 single-tenant convenience store properties in the U.S. in a $1.5 billion sale-leaseback transaction with U.K.-based convenience retailer EG Group Ltd. The deal is expected to close in the second quarter.

* JDS Development Group LLC listed its Brooklyn Tower rental property in New York City for sale, Green Street's Real Estate Alert reported. The residential property, which rises 1,000 feet, has an estimated valuation of more than $600 million.

* E-commerce giant Inc. bought the former insulation factory site of Owens Corning in Santa Clara, Calif., for $237.8 million, the Silicon Valley Business Journal reported, citing county records and a document filing. Amazon's plans for the property are unclear.

* Griffin Realty Trust Inc. sold the Amazon Web Services-leased South Lake at Dulles Corner Business Park, a 270,000-square-foot office property in Herndon, Va., to Vision Properties LLC for $110 million, Commercial Observer reported.

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