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A new normal for TI encourages relocations and continued urban migration as prices rise

• Tenant improvement allowances (“TI” or “TIA”) do appear to be increasing at an accelerated rate in the Chicago CBD market.

• Downtown Chicago lease transaction TI p.s.f. per year has increased over the past three years. So have other factors that affect a tenant’s bottom line like rental rates, property taxes, and construction costs. The net effect may be neutral.

• While renewals trend downward in TIs p.s.f. per year, TI packages for new leases jumped 27.1 percent over the past three years. Average 10-year TI growth is 6.6 percent for new leases and 4.2 percent for the market overall. Since 2015, new leases TI packages averaged 10.8 percent growth, parallel to average rises in construction costs and rental rates for the MSA.

• TI p.s.f. per year is positively correlated with building class, and Trophy building landlords offered TI premiums of 51.8 percent in 2017.

• So if you’re an occupier evaluating your real estate options, perhaps consider paying a higher face value rent to satisfy building investors while negotiating a TIA as high as $10 p.s.f. per year.

Source: JLL Research, analysis of 353 transactions over 20,000 SF

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