Press release

LANDLORDS' FLEXIBILITY DRIVES DOWN LEASES

Date

5th November 2007

Description

Landlords have responded to tighter market conditions over the last year by negotiating shorter leases with retailers and other commercial tenants, in a bid to increase choice and flexibility.

The tenth Annual Lease Review, published by the BPF and IPD, reflects the downturn across property during 2006/07 and a desire more generally across business for greater flexibility, with the average length of a lease falling from 6.2 to just 5.7 years.

The survey draws from detailed evidence of 75,000 tenancies, encompassing a full analysis of lease lengths, break clauses, review cycles, rent free periods and income profiles. It incorporates the 9,580 new leases granted between January 2006 and March 2007.

The continuing trend towards shorter, more flexible leases will boost confidence in the industry’s ability to provide tenants with the terms they need and adapt to changing market conditions.

Headline facts:

• Average lease lengths are down from 6.2 years in 2005/06 to 5.7 years in 2006/07

• Taking break clauses into account:
o retail leases fell from an average of 7.8 to 7.0 years
o office leases fell from an average of 5.7 to 5.2 years
o industrial remained the same as the previous year’s survey at 4.2 years.

• Shorter leases have become more frequent, 67% of leases granted in this year’s Review were for 5 years or less.

• Longer leases have become less frequent. Less than 3% of leases agreed in 2006/07 were for more than 15 years, although these leases accounted for 15% of the total rent passing – fitting the pattern that units with larger rents sign longer leases.

• While leases have shortened, the average first period to break on all property where the lease contained a break was 6.3 years compared with 5.4 years in 2002.

• In 2002, 26.6% of leases had first break and rent review on the same date, whereas in 2006/07 the proportion was just 9.3%. The same trend can be seen across all sectors. This indicates that break clauses are becoming more effective.

Liz Peace, BPF chief executive, said:

“Tighter market conditions experienced by the retail sector over the last year seem to be reinforcing the longer term trend across all sectors for shorter leases. Whatever the cause, in these uncertain times what is important is that the property market is offering a choice of duration of leases that reflects the needs of its customers. Of course, this downward trend cannot continue forever but I have no doubt that the practice of providing choice to potential tenants will continue and that is what is important”

For more info or interviews contact Andrew Teacher, BPF media manager, on 020 7802 0113 / 07968 124545 / ateacher@bpf.org.uk

Notes to editors:

1. The tenth Annual Leave Review is produced by IPD on behalf of the British Property Federation. A full copy can be accessed via the BPF’s website: www.bpf.org.uk.

2. Technical queries or requests for raw data should be addressed to Angela Sheahan, Research Manager at IPD, tel: +44 (0)20 7336 9282, email: angela.sheahan@ipd.com

Downloadable documents

Annual Lease Review 2007 - Full report - 1MB.