Commercial property leases have reached an eight-year high as rising occupier confidence creates competition for space.
MSCI/IPD’s UK Lease Events Review 2015 found the average length of a new lease rose to 7.2 years in 2015, the longest since 2007.
Retail leases saw the greatest increase, from 6.7 to 7.5 years, which the report said reflected improving conditions and an unwillingness among retailers to move from prime pitches.
Office leases rose to 6.9 years and industrial leases to 6.6 years.
More tenants opted not to exercise break clauses – 71% on average, up from 63% last year. This rose to 80% for retailers.
Rates of default continued to fall and are now down to 3.7%, compared with 6.2% two years ago. Defaults remain higher in the City office and shopping centre segments, at 10.4% and 6.7% respectively.
Despite rising confidence, the number of tenants vacating at expiry has increased, with just 43% renewing leases, down from 49% last year. Of the buildings vacated, 48% were still empty after six months.
MSCI senior associate Colm Lauder said the low renewal rate was a reflection of the number of 25-year leases signed in 1990 expiring this year, meaning the buildings were often obsolescent.
Strutt & Parker senior partner Andy Martin added: “It will be investors that take a realistic view on lease events and plan for their outcome and aftermath that will succeed as the property cycle moves into its next phase.”
