Lease lengths in commercial property have fallen to a historic low in the year to June 2013, while lost income due to tenant defaults have hit a record high.
New research by IPD, in partnership with Strutt & Parker and the British Property Federation, shows that landlords have lost 6.2% of their income due to defaults and insolvencies.
Meanwhile, the average new lease fell to 5.8 years, from 7.8 years in 2003 and six years in 2009.
Over 80% of UK leases signed in the year to June 2013 were less than five years – the highest percentage since measurement began, and up from 55% 10 years ago.
The IPD Lease Events Review measures over 93,000 commercial leases, and 3,500 lease events across the UK.
Some 55% of relets were agreed at lower rents than previously, with the figure reaching 100% outside the South East, while rent-free periods have doubled their length compared to ten years ago, now standing at 9.5 months on average.
IPD associate and consultant for the UK and Ireland Colm Lauder said: “In order to avoid costly voids, landlords are still doing anything they can to secure income streams. This has led to lower lease lengths, more rent-free periods, and reduced rents upon re-letting.
“Property is of course cyclical, meaning this is not necessarily a bad thing; shorter leases will allow landlords to relet for higher rent in future, especially when active management is taken into account. But it shows that although confidence is improving around the commercial property market, occupiers are still calling the shots for investors.”
For the full analysis, see this weekend’s edition of Estates Gazette.
chris.berkin@estatesgazette.com
