Free Rent or Landlord Work? How Queens Warehouse Owners in Maspeth, College Point and Long Island City Should Price Industrial Concessions

A 12,000-square-foot warehouse in Maspeth comes back from a tenant who left early, and within a week three prospects are asking for the same thing: three months of free rent, a freshly painted floor, a new dock leveler and a ten-year term at today's rent. An owner who answers each request one at a time ends up with a lease that looks fine on the first page and costs far more than anyone calculated. I treat industrial concessions as a pricing problem first and a negotiation second, and in Queens the numbers behave differently than they do in office buildings.

Industrial tenants rarely ask for large tenant-improvement allowances. They ask for time, power, doors and fewer surprises. That changes which concessions are cheap for an owner to give and which are expensive, and it is why a package built from an office playbook usually overpays.

Why industrial concessions are not office concessions

In a Class B office building, the big-ticket concessions are free rent and a tenant-improvement allowance, and both are measured against a long term. A Queens warehouse tenant usually needs a clean, functional box. Their build-out is racking, a few offices and electrical drops, much of it moveable. The cost that matters to them is the first few months, when they are paying rent on a space that is not yet producing revenue.

That makes free rent the dominant request, and it makes landlord work, such as a dock leveler, a roll-up door or a repaired apron, the second. The allowance in dollars per square foot is small by office standards. Owners who offer an office-style allowance spend money on something the tenant did not value.

There is also a difference in how long space sits. Well-located, functional warehouse space in Queens still leases faster than most office space, so the vacancy cost of holding firm for a few extra weeks is lower. I have watched owners concede three months to close a lease a week sooner, which is a poor trade.

Price the concession before you give it

The first step is to convert every request to a single number. Take a prospect asking for three months of free rent on a five-year term at $20 per square foot. Three months is 5 percent of the term's rent, so it lowers the average rent over five years to $19 per square foot, a reduction of $1 per square foot. On 12,000 square feet, that is $12,000 a year, or $60,000 over the term.

Now compare that to the alternatives an owner can offer instead. A $2 per square foot dock and door allowance costs $24,000 once. A step in the rent, say $18 in year one rising to $21 by year five, can produce the same average rent as a flat $20 while giving the tenant a lower early payment. A one-month abatement combined with a 3 percent annual escalator can cost less than the three-month request and still leave the tenant feeling it won something.

I put every package on one page, with the average annual rent, the total concession cost and the net effective rent per square foot, so the owner can see what each choice is worth. The tenant's number and the owner's number are rarely the same, and the difference is where the negotiation lives.

A concession you have not converted to a dollar figure is a concession you have already overpaid for.

Free rent: how much, when and under what conditions

When free rent is the right tool, the structure matters as much as the length. I look at four things.

First, the length should scale with the term. A common range in Queens industrial is one month of abatement for each year of term, with a ceiling of three months on a five-year lease. A tenant who asks for more on a short term is asking the owner to underwrite their startup costs.

Second, free rent should cover base rent only. The tenant still pays utilities, insurance and any recoverable expenses during the abatement. If the lease is net, tax and operating pass-throughs begin on the commencement date.

Third, the abatement should be conditional. If the tenant defaults, the lease should say that unamortized free rent comes due. The same goes for a security deposit that is sized to the concession instead of fixed at two months.

Fourth, timing. Back-loading free rent into the end of the term is rarely worth the tenant's attention, but it sometimes appeals to a stronger operator who wants to keep the lease economics clean on paper. Front-loaded abatement is easier to administer and easier to explain.

Landlord work: spend where it earns rent

Owners often overspend on the visible items and underspend on the ones tenants actually need. A fresh coat of paint on a warehouse floor has little effect on rent. A working dock leveler, a leak-free roof and a power upgrade can change which tenants the building can serve.

I rank landlord work by whether it widens the pool of tenants or only improves the pitch. A truck court that allows a 53-foot trailer to turn widens the pool. Added LED lighting reduces the tenant's operating costs and tends to pay for itself. Painting is optional. A floor that has been repaired and sealed is worth doing when the slab is in poor shape, because tenants with heavy equipment will ask about it.

Where an owner does the work, I tie it to the lease. A landlord's work letter should list what is being done, the completion date and what happens if the work is late, such as a day-for-day rent credit. Without that, the owner has given a concession and also created a dispute.

Case study: a 12,000-square-foot Maspeth warehouse

A single-story, 12,000-square-foot warehouse in Maspeth, with 18-foot clear height and two dock positions, came back to the owner after seven years. The owner had received three offers, each at $20 per square foot on a five-year term, and each asking for between two and four months of free rent and a landlord-funded allowance.

I ran all three through the same framework. Offer A asked for four months free and $4 per square foot in allowance, for a total cost of about $128,000 against $1.2 million in term rent, which reduced the net effective rent to roughly $17.90. Offer B asked for two months free and a new dock leveler, with a total cost of about $52,000 and a net effective rent of about $19.10. Offer C asked for three months free and nothing else, at about $60,000 and a net effective rent of $19.00.

The owner's instinct was to take Offer C because it was the simplest. I recommended Offer B, countered with a 3 percent annual escalator and a two-month security deposit. The dock leveler was something the owner needed to replace within a few years anyway, so the work added value to the building and not only to the lease. The tenant accepted. The escalator raised term rent from $1.2 million to about $1.27 million, an added $74,000, and after the $52,000 in concessions the net effective rent came to about $20.30 per square foot. That was 6 percent above Offer B as first proposed and 13 percent above Offer A, on a lease that was no harder to sign.

Read the tenant behind the request

The same ask means different things from different tenants. A distributor with three years of financials and a second location asks for free rent because it is standard. A new operator with one truck and no operating history asks because it needs the cash. I give the first a shorter abatement in exchange for a longer term, and I give the second very little time and a larger deposit, because the free months are the owner's money funding a business that has not yet proved itself.

I also ask what the tenant will do with the savings. A tenant who plans to spend them on racking and equipment is investing in the space. A tenant who needs them to cover payroll is borrowing from the owner. That one question has changed more concession packages than any comp I have pulled.

Protecting the concession after signing

Concessions fail when the lease lets the tenant keep the benefit and walk away. I add three protections as a matter of course.

An early-termination clause, if the owner agrees to one at all, should require repayment of the unamortized concession plus the owner's cost of re-leasing the space. Without it, a five-year lease with a termination right at month 24 is really a two-year lease with three years of risk the owner has already paid for.

A personal guarantee or a larger deposit should be sized to the exposure. If the concession package is worth $52,000 and the deposit is $20,000, the owner is carrying $32,000 of unsecured risk. I walk through the credit side of this question in Screening a Warehouse Tenant in Queens.

A renewal option, if one is granted, should be priced at fair market rent and should not carry its own free rent. I write about how to draft that reset in Renewal Options in a Brooklyn Warehouse Lease.

Not every request deserves an answer. If the building is well located, has working docks and sits in a submarket like Maspeth, College Point or Long Island City where small and mid-size industrial space is scarce, the owner can afford to hold firm on face rent and trade only in time or in work the building needs.

I tell owners to set a walk-away number before the first call: a minimum net effective rent, a maximum free-rent period and a minimum deposit. Decisions made in the middle of a negotiation tend to drift in the tenant's favor. A number written down beforehand does not.

Across 100+ landlord engagements and 13+ years of daily work in NYC real estate, the owners who keep the most income are rarely the ones who refuse every concession. They are the ones who know what each concession costs, and who give the cheapest one that closes the lease. For owners weighing whether older, below-market leases are worth resetting, I cover that in Below-Market Leases in a Queens Warehouse.

If you own an industrial building in Queens and want a concession package priced against the numbers before you answer a prospect, I can do that as a fixed-fee consulting engagement, with no commission, no listing and no long-term contract. You keep every decision, and you make each one knowing what it costs.