Landlords are negotiating shorter leases with commercial tenants as market conditions become tougher said a lease review report published today.
The British Property Federation and the Investment Property Databank in its 10th Annual Lease Review said the trend reflected the downturn across property during 2006/7 ‘and a desire more generally across business for greater flexibility, with the average length of a lease falling from 6.2 to just 5.7 years’.
Retail leases experienced the biggest drop, after taking break clauses into account, and fell from an average of 7.8 years to 7.0 years. Office leases fell from an average of 5.7 years to 5.2 years while industrial remained the same as the previous year’s survey at 4.2 years.
Of all leases granted, 67% were for five years or less while less than 3% of the leases granted this year were for more than 15 years. The average first period to break on all property where the lease contained a break, was 6.3 years compared with 5.4 years in 2002.
Liz Peace, BPF chief executive, said: ‘Tighter market conditions experienced by the retail sector over the last year seem to be reinforcing the longer term trend across all sectors for shorter leases.
‘Whatever the cause, in these uncertain times what is important is that the property market is offering a choice of duration of leases that reflects the needs of its customers. Of course, this downward trend cannot continue forever but I have no doubt that the practice of providing choice to potential tenants will continue and that is what is important.’
The survey was based on an analysis of 75,000 tenancies and 9,580 new leases granted between January 2006 and March 2007.