Short term commercial lease agreements on the rise

Published by Sarah Ashcroft

A short term commercial lease agreement could be the best way for landlords to secure a business tenant, new figures indicate.

The largest independent study of commercial property tenancies has shown a fall in lease lengths to a new low of 4.8 years on average as landlords look to meet tenant requirements.

An "increasingly polarised market" has developed over the past year, say the report's authors, the British Property Federation (BPF) and Investment Property Databank (IPD). They reveal that while there are some long term deals on prime property, there is a tendency for some occupiers to opt for a stop gap, rather than more medium term leases.

The annual study found that 76 per cent of new leases signed in 2011 were for less than five years in length. Leases signed in 2011 averaged 4.8 years - a decline of well over a year compared to pre-recession levels in 2007.

BPF chief executive Liz Peace said: "In uncertain times it is quite understandable that occupiers are opting for shorter leases. The long term trend has for some time now been towards a shorter lease, but this has been accentuated over the past year by economic circumstances."

The market shows variety, she explained, with short leases for start-up SMEs and longer leases for retail and office occupiers.

Ms Peace added: "The security of income that comes with a long lease helps our industry raise finance particularly for development projects and so there will always be a place for the longer lease to help support development and growth in our economy."

IPD senior research manager Greg Mansell notes that the trend for short lease agreements brings added complexity to the commercial sector. "While short leases give the opportunity for achieving higher rents in future lettings, this relies on a degree of confidence returning to the occupier market," he explains.

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Published on: May 9, 2012

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