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How Construction Costs and Tenant Improvement Allowances are Shaping Office Lease Terms and Market Dynamics Amid Changing Tariffs
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Tenant improvement allowances (TIAs) surged in the post-COVID market, peaking in late 2024. But construction costs have risen even faster, creating a widening gap between what tenants receive and what buildouts actually cost.
Key insights include:
- TIAs reached record highs as landlords competed to attract tenants with premium buildouts.
- Construction costs can outpace allowances, driven by price increases in materials and labor.
- Landlords are regaining some leverage as office demand stabilizes and new, high-quality space becomes scarce.
- Tariffs and rising material costs could add more pressure through 2025 and beyond.
- The big question: Will TIAs stabilize or decline if tenant leverage declines?
Understand how these forces are reshaping office lease terms, tenant concessions, and market dynamics heading into 2026.