Average Lease Term
With rental rates at their softest levels in years, now is an excellent time for tenants to lock in a long-term lease. But that doesn’t seem to be happening yet as the average lease terms for office and industrial deals signed thus far in 2010 continue to set new record lows, down to 44.4 months for industrial leases and 52.6 months for office leases. Part of this dynamic might be due to the fact that sublease deals are beginning to pick up, and those typically have shorter terms left on their leases. But it may be that tenants remain in a defensive mode, preferring to hedge their bets with short-term extensions rather than locking in a full five-year term even if they can get better rates. These tenants are willing to pay a little extra to keep their options open in case the recovery falters. The average lease size also has continued to dip this year, a sign that tenants aren’t paying for extra space to accommodate future growth.
Source: Grubb & Ellis