With the credit crunch not loosening its grip, commercial property landlords have found that one knock on effect has been that they are having to offer shorter leases to their tenants. In general, lease length has fallen to an average of 4 years and 9 months, from an average in 2007 of 6 years and 3 months. Landlords in the High Street retail sector have seen similar falls, with the average lease now only being just over seven and a half years, from almost ten in 2007. This shortening of the average lease is market led, of course, with many businesses being unwilling or unable to commit to the longer term.
Although this trend is happening throughout the country, it is more marked in areas such as South Wales rather than in major cities such as London, Bristol and Birmingham, where larger multi-nationals are able and more importantly willing to sign longer leases so as to get better deals on price. In areas where the recovery still seems very much in the future, such deals are not possible for the majority of tenants.
Landlords are having to be more flexible to enable tenants to take up leases on their properties. It is to their benefit in the long term, as it ensures that their properties are occupied and that the businesses who have taken up the shorter, more flexible lease are more likely to weather the financial climate as they don’t have the worry or expense of a long lease which could affect the viability of the business.
Agents are working to help both landlords and tenants and there are examples of leases as short as monthly for start up industrial units and this is proving very popular with tenants who are dipping a toe into the water and can’t see their way clear financially to take on a long term lease. Retail units with leases of six months are becoming quite usual and this gives a fledgling business the chance to test the viability of their ideas without being tied down to a large financial outlay. Without too many constraints of this nature, they are more likely to succeed, which is good for landlords, tenants and the High Street as a whole. Taken on the larger stage, the regeneration of the economy depends on small scale operations taking their place in the general business life of every community, large or small. With short term leases available, the list of those willing to try start up businesses will be much longer.
For anyone planning a new business which needs premises, now really is the time to begin. The current market conditions favour the start up entrepreneur and with landlords on board and many agents able to negotiate short leases not dreamed of five years ago, taking the advantage while it is still here is, if not a guarantee of success, at least a few steps up the ladder.