TL;DR
- Rent-free is the most flexible concession — landlords prefer it to face-rent reductions for valuation reasons.
- Front-loaded vs layered abatement materially changes effective economics.
- Tie rent-free to construction completion, not lease execution, on heavy fit-out">fit-out deals.
- On trophy lease-up, push for 20-30% of total term as rent-free.
- Always model the **effective rent** — face minus PV of concessions — not the headline.
Why landlords prefer concessions to face-rent cuts
Trophy assets are valued on the income they produce, capitalised at the market yield. A face-rent reduction directly cuts both the income and the implied valuation. A concession (rent-free, TI) preserves the headline rent and produces a higher implied valuation — even though the effective economics are equivalent. This is why landlords will negotiate aggressively on free months and TI but resist face-rent reductions. Use the asymmetry.
Structuring the abatement
Three common structures: 1. **Front-loaded.** All free months at the start of the term. Maximum tenant cash benefit early; some lenders dislike for valuation reasons. 2. **Layered.** Free months at year 1 and again at year 5 or 6 (typically tied to a break date). Useful when the tenant has a break and wants to disincentivise exercise. 3. **Tied to fit-out.** Free rent begins at lease commencement but stops the meter on construction time. Critical on heavy fit-outs — otherwise you pay rent on space you cannot occupy.
Tying rent-free to construction completion
On any deal with TI above $50/sqft and a construction period over 12 weeks, insist that the rent commencement date is the later of (a) lease execution + an agreed-on construction window, or (b) substantial completion of the tenant fit-out. Landlords will resist; the first 90 days of occupancy is when the dollars matter most.
Modelling effective rent
Effective rent is the present value of all rent paid over the term, discounted to today, divided by the term. It is the only number that lets you compare deals with different concession packages. A 10-year Manhattan trophy deal at $150/sqft face with 18 months free has an effective rent of approximately $130/sqft. A 10-year deal at $135/sqft face with 6 months free has an effective rent of approximately $128/sqft. These deals are economically equivalent — but the first looks 11% more expensive on a brochure.
Frequently asked questions
- How much rent-free is typical on a 10-year deal?
- 12-18 months in New York's trophy tier; 18-24 months in London on a 10-year FRI; 12-20 months in most US markets; 30+ months in Sydney where the gap between face and effective rent is structurally large.
- Can I take rent-free as a cash payment instead?
- Sometimes — but the tax treatment differs. A cash inducement is generally taxable on receipt; rent-free is amortised over the term. Coordinate with tax counsel before structuring.