Commercial property lease lengths hit eight-year high

Photo: JEPoirrier

Commercial property lease lengths have hit an eight-year high in the UK, as occupiers become confident once again.

New research, sponsored by Strutt & Parker and the British Property Federation, and based on an analysis of over 90,000 leases across the UK, reveals new property lease lengths rose to 7.2 years in 2015, matching levels last recorded at the market peak in 2007.

Retail led the way, with the typical length of a lease rising from 6.7 years in 2014 to 7.5 years in 2015, highlighting the improved trading conditions for occupiers, as well as the importance of a prime pitch and the unwillingness of retailers to move elsewhere.

At lease expiry 43 per cent of tenants chose to renew their leases. This was above the 17-year average of 38 per cent suggesting that the market is beginning to experience more normalised conditions.

Offices generally saw a shorter lease length than in the retail sector, although both sectors recorded a significant rise in lease lengths. Office sector tenants, however, remained highly flexible with just 34 per cent renewing their tenancy at the end of a lease, compared to just over half of retailers.

The research shows that landlords are keen to avoid vacant space and were offering occupiers better deals to avoid the risk of empty properties.

Colm Lauder, Senior Associate at MSCI, adds: “As a barometer for the wider economy, commercial property is a strong indicator of business sentiment. Improved demand for retail space reflects greater consumer spending while demand for office space highlights growth in the services sector.

“As yields stabilise in the UK market following a tumultuous recovery, a growing emphasis is being placed on income growth, so this analysis will come as good news to investors. Longer lease lengths and declining insolvencies will further bolster the appeal of UK real estate for investors looking to shelter from more volatile investment options.”