Hefty TI Packages May Start Shrinking

CHICAGO-The largest US office REIT has put out the call to its leasing staff—start paring back on tenant improvement packages. Tenant improvement and leasing costs were $22.94 per sf for Equity Office Properties Trust on deals that took effect in the third quarter, when the REIT reported a 10.4% drop in funds from operations over the same period in 2002.

The TI and lease commission packages in the third quarter jumped nearly 48% over the previous three months, Equity Office Properties officials reported during their earnings conference call Tuesday. Those costs also are up 58% over the third quarter of 2002.

Over the first nine months of 2003, tenant improvement and leasing costs average out to $17.69 per sf, according to Equity Office Properties Trust, up almost 40% over the same period in 2002.

The upward trend in tenant improvement costs is part of the ride property owners are taking as the economy recovers, suggests president and CEO Richard Kincaid. However, it is time for his REIT to apply the brakes, he adds. “The trend in TI has to stop, and we have to stop,” Kincaid says.