Commercial property leases have reached an eight-year high, the result of rising occupier confidence and competition for space, according to MSCI/IPD.
The UK Lease Events Review 2015, sponsored by Strutt & Parker and the British Property Federation, said the average length of a newly signed lease rose to 7.2 years in 2015, the longest since 2007.
The research found that retail leases saw the greatest increase, from 6.7 to 7.5 years, a sign of improving conditions and an unwillingness among retailers to move from a prime pitch. The average office lease length rose to 6.9 years and industrials to 6.6 years.
More tenants also opted not to use their break clause – 71% on average, up from 63% last year – and this rose to 80% for retailers.
Alongside this, rates of default continued to fall, and are now down to 3.7% on average, compared with 6.2% two years ago, though rates remain higher in the London office and shopping centre segments, at 6.7% and 10.4% respectively.
Colm Lauder, senior associate at MSCI, said: “As a barometer for the wider economy, commercial property is a strong indicator of business sentiment.”
He added: “Improved demand for retail space reflects greater consumer spending while demand for office space highlights growth in the services sector.”
But alongside the generally positive findings, the research uncovered an increase in the number of tenants vacating their lease upon expiry.
Just 43% of occupiers renewed their tenancies, compared with 49% last year. Furthermore, of those leases that had a vacating tenant, 48% were still empty after six months.
This is due in part to the last of the long, 25-year leases, signed in 1990, working their way out of the system, and finding themselves in a state of relative obsolescence. Office renewals were just 34%.
“It will be those investors that take a realistic view on lease events, and plan appropriately for their outcome and aftermath, with a focus on the underlying drivers of demand, who will succeed as the property cycle moves into its next phase,” said Andy Martin, senior partner at Strutt & Parker.
