Landlords are taking note of the competitive benefit of offering pre-built spaces ready for immediate occupancy rather than focusing on post-lease buildouts or tenant improvements. Tenants are seeking high-quality spaces that will help attract employees back to the office while minimizing lengthy intervals between signing and move in, according to an office sector analysis by CompStak.

Since 2019, the share of leases executed in landlord-built transactions grew each year to reach 46.6% this year. At the same time, tenant-built transactions steadily declined from 2019 dropping from 88.4% to 44.6% share.

“This significant shift could be attributed to the growing supply of landlord-built spaces, as landlords sought strategies to compete with the rapidly rising inventory of office and sublease space — much of which is already built and often furnished,” the report noted. “Landlord-built spaces have traditionally catered to smaller office offerings, targeting companies seeking ready-to-use space. However, this trend appears to have shifted post-pandemic.”

The growing share of deals involving landlord-built spaces has increased across all transaction sizes during the post-pandemic period, with the largest increase occurring in transactions ranging from 10,000 to 24,000 square feet.

Tenants appear to favor the shorter lease signing to commencement period typical with landlord-built transactions. Landlord-built deals are about 33% faster, which means less time space remains unoccupied resulting in faster rent payments and positive outcomes for landlords, said CompStak. The longer execution-to-commencement periods within the tenant-built space are likely due to construction timelines and materials procurement challenges, although these issues have moderated since mid-2022.

Landlord-built transactions are commanding a rent premium per square foot over tenant-built deals. This premium has consistently remained in double digits since 2018 and this year has reached 18.9%. For deals between 10,000 and 25,000 square feet, the premium averaged about 50% both pre-COVID and from 2021 to 2024 to date. For larger transactions between 25,000 and 49,999 square feet, the premium is smaller but has increased notably, rising from 20.9% to 34.9% over the same periods, said the report.

Landlord-built deals gained share across all value tiers. The most significant increase occurred among the top third of deals, with landlord-built deals gaining 14.4 percentage points in share when comparing the periods 2018-2020 to 2021-2024. In the most recent period, landlord-built deals accounted for 19.7% of deals within the top 25% by value, up from just 5.3% in the 2018-2020 period.

Landlord-built transactions saw a 42% increase in average lease consideration between 2021 and 2024, while tenant-built deals declined in this metric but still maintained a higher average lease consideration than landlord-built transactions. Meanwhile, landlord-built deals saw a 10% increase in average effective rent, 2 percentage points below tenant-built growth. Nonetheless, the effective rent premium per square foot for landlord-built deals held steady, averaging 19.7% in the most recent period, according to the report.