Commercial leases 'the most flexible ever'

Commercial landlords are offering "the most flexible lease regimes ever", leading to a greater take-up of longer leases.

That's according to the British Property Federation's (BPF) Annual Lease Review and a separate study from the Investment Property Databank (IPD), which found that in real terms high street shop rents have fallen by more than a third over the past 20 years.

The studies, put together for retail guru Mary Portas' review of high streets, examined retail tenancies across a variety of uses including retail, offices and industrial. Sites used for pubs, bars and restaurants are included in the research as retail outlets.

Average rent free periods in leases increased to 13.4 months in 2010/2011. This represents an increase of 4% in offices, 2.6% in retail and 1% for industrial uses.

In addition, the proportion of leases with break clauses increased from 29.4% to 31.1% between 2009/2010 and 2010/2011. Among standard shops, the proportion surged from 3.9% in 1999 to 34% in 2010/2011.

Length of lease

The average length of new leases, including break clauses, increased from 8.6 to 9.4 years, after two years of consecutive declines. If short leases (under four years) are excluded, the average length increased from 7.2 to 7.6 years.

This year has also seen a decline in the proportion of leases up to five years in length: from 72% to 63%.

According to the IPD, since 1989, rents for standard shops have risen by 24%, while inflation has risen 94% over this period. In real terms, therefore, rent has fallen by 37%.

To demonstrate differences between regions, the survey shows that shop rental growth since 1989 has been 51% in central London, 24% in the rest of London, 10% in the rest of the south east and eastern regions and 25% in the rest of the UK.

Complex

"The issues facing our high streets are extremely complex with recession, structural changes caused by the internet and consumer preference all in play. In such times of change it is important that leases adapt," said BPF chief executive Liz Peace.

"Today's data clearly shows landlords are increasingly flexible and retail property leases continue to adjust to economic conditions, with leases that are shorter, offering breaks and substantial rent-free periods to help new shops to get off the ground.

"Whilst rents in prime retail areas and sites such as shopping centres will have increased substantially, many high street shops will have rents that in real terms are substantially lower than in 1989.

"During the last early-90s recession, there were legitimate claims from the retail community that the 'institutional lease', which commonly was for 20 years plus, with upward only rent reviews and no breaks, was inconsistent with many retailers' needs.

"The property industry has significantly changed the variety of its offer and I don't think that is always well recognised.

She added: "Rather like our high streets, however, the property industry thrives on its variety, and ability to raise investment.

"There is no one size lease, but a mix that caters for our industry's office, industrial and retail customers."