Landlord concessions and tenant improvement allowances (TIAs) have been on the uptick over the last few years. Remote and hybrid work trends have led to higher competition for office tenants, and as a result, many landlords are offering longer periods of free rent and higher tenant improvement allowances. Some major markets, particularly New York City, are seeing more of this than others, but improvement allowances and concessions are up across the country. Negotiating these deals has become a critical part of the leasing process for landlords, who need to balance filling office space and keeping property cash flowing. 

Tenant improvement allowances, also sometimes referred to as a fit-out or build-out allowance, are usually negotiated by landlords and tenants during a lease transaction. A credit is given to the tenant for improvements to the space leased and can go toward things like walling, flooring, HVAC, electrical costs, and plumbing. Things that may not be covered under a TIA could be things like furniture, electronics, and any moving costs. These allowances are often calculated based on an allowance per square foot, for example, a TIA could be calculated at $10 per rentable square foot, which in a 15,000-square-foot space, could mean a $150,000 allowance. TIAs aren’t expected to be returned to the landlord, but most landlords look to recoup the cost of the allowance by adding a portion of the TIA in the base rent or extending the length of the lease. 

In Manhattan, the country’s largest office market and a city that’s often looked at as a barometer for the entire nation, flight-to-quality has been a much-talked-about trend. But while it’s true that office tenants are flocking to newer buildings with the most high-end amenities, they’re being given a lot of incentive to do so. Office tenants signing leases of at least 20,000 square feet and at least seven years at Class A buildings in Manhattan have been getting an average of 24 percent of their total rent as concessions, which includes free rent and TIAs, since 2020, according to Avison Young. “Quite frankly, I don’t see that number going down over the next several quarters,” said Avison Young’s Danny Mangru. Pre-pandemic, tenants in Manhattan’s office market received an average of 16.7 percent of their total rent as concessions, including free rent and TIAs, throughout their lease term. Trophy office tenants had the largest packages, at 17.2 percent of their total rent. Now, concession values have jumped across all building types, averaging 21.3 percent. 

The sharp uptick in TIAs isn’t just limited to New York City. Higher figures are also being seen in major markets including Atlanta, Boston, Chicago, Los Angeles, San Francisco, and Washington, D.C., markets that all experienced jumps in TIAs and free rent periods since 2019, according to Avison Young data. While average TIAs were $128 per square foot in Manhattan between January and June of this year, figures were even higher in San Francisco and Washington, D.C., where TIAs averaged $135 per square foot in both cities. In Texas, many companies are choosing to sign longer leases in order to receive bigger TIAs. With steep construction costs continuing to stick around, agreeing to longer lease terms for a bigger TIA package makes sense for both landlords and tenants. 

These latest numbers show an overall tenant-favorable office market that may continue for some time. “Three years now we’ve definitely seen a year-over-year decline in rents and a year-over-year increase in what tenants require,” said Chris Okada, CEO of New York City-based commercial real estate firm Okada & Co. “So playing the lowest rent on the block game really doesn’t separate you anymore, because everyone’s playing that game.” In New York, Okada has seen the size of TIAs quadruple since 2020, with averages going from about six months of free rent to the equivalent of almost two years of free rent. The high TIAs can vary widely not just by neighborhood, but even block by block, as his firm has seen. “I think it’s a, ‘this is what we know we can get’ scenario,” Okada said. Tenants that are paying top dollar in rent know they have a lot of options. “Why wouldn’t you do that?” he said. “They just want a good deal.”

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But Okada isn’t worried about high TIAs. He sees the uptick in recent years as a cyclical occurrence that has historic precedence. “We’ve been here before,” he said, pointing to office occupancy reaching anywhere between 16 to 18 percent over the last few decades during economic downturns, from the time period of the Great Recession, the dot-com bubble in the late 90s, after 9/11, and in the early 1990s. “People in business for more than 20 years have seen this before numerous times and know rents can recover quickly and double,” Okada said. He also isn’t worried about the state of the office going forward, given the significant shift to remote and hybrid work. “There’s always a new wave of space users that come in and take up more square footage, it happens every single economic cycle,” he said. “Maybe it will be AI companies next?” That prediction could very well turn out to be true. After all, AI companies looking to lease space in the beleaguered San Francisco office market have been a beacon of hope for the city’s real estate industry.

In today’s office environment, tenants tend to have a lot more options to choose from and a lot of incentives to sign a lease. TIAs and rent concessions are on the rise in major markets around the country, and while getting free rent and a hefty sum to build out a space is definitely favorable to an office tenant, by getting a longer lease term in exchange, landlords can have the assurance of cash flow for their property. Higher TIAs and rent concessions are expected to continue for the foreseeable future by many in the industry, especially as office occupancy has been slow to improve over the last several months. But as history has shown, burgeoning industries that are less impacted by economic conditions, like the AI industry, could help turn office markets around and turn the tide on higher TIAs and concessions.

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Demand for home learning this fall was much higher than expected from San Francisco schools, creating a number of logistics issues that have left some children in limbo or are still awaiting the start of the school year.

The San Francisco Unified School District is struggling to accommodate any students whose families tried to remotely study them because they were uncomfortable about the transmission of the coronavirus. District staff initially planned an online program for approximately 450 students, or one percent of the student population, who were classified as “medically fragile” under federal guidance, with the remaining students expected to be in person again.

Instead, 735 students applied and were accepted, district officials said on Monday. And in July, state lawmakers passed Assembly Bill 130, which allows independent instruction of children at risk for personal instruction as directed by a parent or guardian. Just a few weeks before the start of the school year, the district had to add another 1,200 places.

In total, more than 1,900 students were offered places in the online programs that were not yet completely finished. This has left some students with no instructions or curriculum to learn from as their parents keep them at home for safety reasons.

“We did not have the lead time to start and implement this program thoughtfully,” said Eikia Ford-Morthel, SFUSD deputy headmistress, at a school committee meeting on Monday. “The resource and personnel constraints are real. There is a great personnel crisis in the education sector. “

Despite these setbacks, the staffing levels for the online learning program for the medically vulnerable students are now set. But the on-demand tutorial for parents who feel personal learning is too risky for their children needs 55 more educators, with dozens more open educator positions open, Ford-Morthel estimates. She said they hoped to leverage existing staff at websites that the online students are familiar with.

SFUSD was unable to provide demographic information on students seeking distance learning in time for release, but staff said very few attend high school. There is also evidence that Chinese families living in communal housing have strong online preferences. The Chinatown Community Development Center surveyed 294 families living in single rooms prior to the school year, 70 percent of whom were against sending their children for personal study.

Almost 900 students who have been admitted to either program have yet to confirm their participation by signing the agreement. Some may not know or have not accessed the agreement, but others struggle to understand what it involves and whether it is the right step as the schedule includes far less live teaching than distance learning.

Monolingual families in particular fear that their children will be left behind without practical support and staff to connect with. Some parents reported school management members Monday that more than a month had passed and they either had no information about their application status or had received schoolwork for their children to learn from.

“You are stuck in this dilemma,” said Jen Chan, resident services manager at CCDC, which owns and runs SROs. “Some of them may still be enrolled in their current school to take the risk. Some parents are at home trying to teach them. It also brings a lot of psychological anxiety to the families. “

Nearly 500 students admitted to the online program have returned to the physical classroom since their admission, while 577 opted out for distance learning.

School and public health officials have worked to reassure families that face-to-face learning is safe and that COVID-19 cases among adolescents are falling. The Department of Health noted that schools in San Francisco had no COVID-19 outbreaks, defined as “three or more cases in unrelated households where the source of infection was at the school”. By September 10, about 90 percent of children between the ages of 12 and 17 had been fully vaccinated.

School board members Jenny Lam, Gabriela López and Alison Collins met with SRO families in Chinatown to hear concerns about access and distancing testing in schools, Han said. Lam said the focus is on understanding concerns and educating families about safety measures and guidelines to increase confidence in sending children in person.

“That’s why it’s so important that we communicate consistently so that families know what we’re doing to protect our students,” said Lam. “We know that we have to do even better in strengthening communication, increasing the number of staff and implementing the program.”

imojadad@sfexaminer.com

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The day Mayor Breed announced that City Hall staff would be working remotely because of the coronavirus pandemic was the day Cody Jang, Head Community Engagement Manager at San Francisco-Marin Food Bank, knew his job would change.

Three thousand volunteers canceled their shifts in a single day. Even the volunteers they could sign up had to work in smaller groups. And tech companies that used to be a constant source for large groups of volunteers were nowhere to be found.

“Nobody wanted to be held liable for sending their employees on a voluntary basis,” Jang explained.

Before the pandemic, the San Francisco-Marin Food Bank planned volunteer shifts three to five months in advance. The nonprofit organization’s two main camps ran food wrap shifts seven days a week, with between 30 and 80 volunteers per shift. Every day there were between two and four shifts. They provided food to around 34,000 families a week.

Today, only seven to ten people are committed to each camp shift. And yet, says Jang, they have to look after 16,000 additional families due to the increased need, a total of over 50,000 families per week.

That increase the tracks with data from the US Census Bureau. The Food Scarcity Pulse Survey found that 6.4% of households in the San Francisco metropolitan area did not have enough to eat between September 29 and October 12, compared with 5.7% in December 2018. But with the increase in teleworking Many technology companies are t no longer voluntarily sending their workers to blackboards. To close the volunteer void, boards are revising their processes, putting their employees on the assembly line and begging for individual volunteers to add a little extra weight.

Volunteers pack delivery bags at home in the SF-Marin Food Bank. (Kevin N. Hume / The Examiner)

According to a study by the Bay Area Council Economic Institute, 51% of workplaces in San Francisco are “remote-enabled”. As previously reported in the Examiner, about 20% of SF-Tech vacancies were for remote work in September – more than any other sector in The City. Even companies that at some point will call San Francisco employees to return to the office won’t reopen immediately. Salesforce and Uber, for example, are waiting for a full reopening until January 2022, while Airbnb is postponing it until further notice in September 2022.

For the past few years, Tafel have relied on some of these companies to find volunteers. For example, Salesforce employees get seven paid days of voluntary time off each year and volunteered more than 20,000 hours at SF-Marin Food Bank between 2016 and 2018 alone.

Zendesk has a remarkable and well-documented relationship with the nonprofit tenderloin social service GLIDE, which supports them with financial donations and volunteer technical staff who package groceries, safe injection kits, or provide human resource development and IT services. Food banks interviewed by the auditor said Twitter, Airbnb, Doordash and Amazon are also actively recruiting volunteers ahead of the pandemic.

There are many reasons technology companies have volunteered so much, especially with food distribution. For one, posting large numbers of workers to fight hunger and homelessness has certainly helped counter the narrative that tech companies are responsible for inequality in the region. But many of The City’s tech companies are also located downtown, either in the Financial District or SOMA, near many food banks and nonprofits that specialize in providing meals to the area’s homeless.

The food banks have also made it easy for them to volunteer. Whole teams can work on the same assembly line in a warehouse at the San Francisco-Marin Food Bank, for example, and there are shifts every day. Lillian Mark, GLIDE Community Safety and Education Manager, says she works directly with companies to create a bespoke volunteer “experience” for their employees based on a team’s specific interests and skills. Julia Sills, Director of Volunteer Services at St. Anthony’s, similarly works with companies to find shifts that go well with any schedule.

In the meantime, the panels are restructuring their way of working. Meals that were previously served in large dining rooms at GLIDE, for example, are distributed to-go with significantly less staff. The other most common tactics are simplifying food preparation – ham sandwiches instead of chili, for example – and closing common areas that require more maintenance and cleaning.

The biggest shift, however, comes in employee responsibilities. Once administrators have provided coordinated services, they get their hands dirty and do the services themselves, often working overtime and foregoing long-term planning for more immediate needs. “We have IT staff making sandwiches and executive assistants handing out meals,” said Mark.

Foster Farms frozen turkeys donated for holiday meals sit on a table in the SF-Marin Food Bank. (Kevin N. Hume / The Examiner)

The need escalates this holiday season. SF Marin Food Bank, GLIDE and St. Anthony’s all have special vacation programs that they need extra hands on. The days after a major public holiday, such as Black Friday or December 26, as well as the months of January and February, are always understaffed, even in times without a pandemic. “We are very concerned about early 2022,” said Jang.

But while some in The City fear tech companies will ever return to the “meat room,” the Tablets are reluctant to make permanent changes. The main solution they long for is the return of more volunteers who are returning of their own accord.

“I don’t feel like we’re in damage control mode because I’m optimistic,” says Sills. “Regardless of what the future of work looks like, whether you work from home, hybrid or not, connecting with the community you live in is important and fulfilling and something these workers want to do.”

virwin@sfexaminer.com

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