June 23, 2004—The latest Nelson Bakewell/Occupiers Property Databank survey shows that lease lengths continue to fall despite increasing business confidence and favorable economic conditions.
A study last year showed that the average length of new lease taken by a wide range of corporate occupiers dropped from around 13 years in 1999 to just 7 years by the end of 2002.
Now, analysis of existing leases in nine different business sectors shows the continuing downward trend in the average lease length. Between 1999 and 2003, the average reduction in length across the sectors was 16%.
Commenting on the findings, Tim Asson of Nelson Bakewell said: “During the past five years many corporate occupiers have contracted their operations and this has created surplus property. More recently, they have accommodated any business expansion within this surplus. This has led to continued reductions in the average lease length as, generally, employment growth has been absorbed within existing space and has not required new accommodation.”
The survey also analyses new leases by sector, type and size. This indicates that the length of new leases is also influenced by business needs and not purely market conditions. However, Asson noted: “While there is evidence that business needs are impacting on the length of new leases, the average unexpired term of existing leases at just over 10 years is still far longer than most companies corporate business planning cycle.”
Asson believes that because of such factors the trend towards shorter leases may be maintained even as occupier demand increases and supply falls.
“Its widely anticipated that the negotiating position of landlords will strengthen as demand outstrips supply,” he said, “but there are a number of new factors that will drive occupiers to pursue even shorter terms. These include the governments Lease Code, Stamp Duty Land Tax and the introduction of International Accounting Standards.”
The research found that, currently, the retail sector shows the longest new leases at an average of around 10 years, while leases in the office and industrial sectors average at 5.9 and 5.5 years respectively.
For more information, contact Nelson-Bakewell.
—Elliott Chase
Reprinted with permission; copyright 2004 i-FM
