Increase in rolling leases boosting vacancy risk

Nearly a quarter of the UK’s offices are held on rolling leases, nearly doubling the vacancy risk. New data from Re-Leased shows that 23.5% of UK office leases are now on a rolling basis, up from just 13.8% in March 2020, when the country first went into lockdown. The cloud-based property management platform cited increased demand for flexibility and shorter leases from occupiers as root cause. Chief executive Tom Wallace said: “These figures demonstrate the changing face of office leasing. Even before Covid, there was an occupier-driven shift towards greater flexibility and shorter leases. Coupled with the impact of a move towards hybrid working, there remains a fair amount of uncertainty in the office market, with many occupiers still getting to grips with new working patterns and the space requirements they entail.” Vacancy risk, calculated as the percentage of leases that are rolling with no agreed expiry, implies that the tenant can legally vacate as they like. While overall rent collection in the office sector has returned to pre-pandemic levels, the fact that almost a quarter of UK office leases are at risk of vacancy suggests the sector is still yet to feel the full impact of the shift towards hybrid working. “While a rolling lease with no fixed expiry does not always mean a tenant won’t stick around, it presents a risk to landlords due to the insecurity of future occupancy and cash flow,” Wallace said. “In the current climate of economic uncertainty, landlords will be looking for ways to persuade occupiers to renew, whether that be through offering more flexible terms, or by upgrading their spaces to meet the latest wellbeing and sustainability standards.” Re-Leased’s analysis is based on live rental collection data from over 10,000 commercial properties and 35,000 leases on its UK platform. To send feedback, e-mail piers.wehner@eg.co.uk or tweet @PiersWehner or @EGPropertyNews