Re-Leased latest data: Average lease lengths recover to pre-covid levels

Average commercial lease lengths in the UK have seen five-months of consecutive growth since June, which recorded an 18-month low, according to CREDIA, the commercial real estate index by Re-Leased. CREDIA is a monthly index that draws on aggregated data from over 20,000 leases in the UK.

Average commercial lease lengths in the UK dropped to 27.4 months in June. By November, the average had recovered to 36.6 months, on par with the 36 months recorded in March, signalling a return to pre-COVID levels. The latest average is however some way off the high of 48 months seen in January 2019.

The index tracks the 3-month rolling average of all new commercial leases signed in the UK, excluding coworking and flexible space leases.

Month/year Av. lease length (months) Month/year Av. lease length (months)
Jan-19 48 Jan-20 39.3
Feb-19 46.5 Feb-20 37.1
Mar-19 39 Mar-20 36
Apr-19 44.7 Apr-20 31.9
May-19 45.1 May-20 29.4
Jun-19 45.2 Jun-20 27.4
Jul-19 37.7 Jul-20 29.9
Aug-19 37.1 Aug-20 30.3
Sep-19 37.3 Sep-20 31.8
Oct-19 42.6 Oct-20 31.9
Nov-19 41.3 Nov-20 36.6
Dec-19 39.5    

Tom Wallace, Re-Leased’s CEO, said “It’s encouraging to see that average lease lengths have entered a period of active recovery and are now level with the average recorded for March before the impact of the pandemic was felt in the market. This is an early sign of renewed confidence coming through from occupiers.

“However, despite seeing some recovery, COVID-19 has certainly escalated the trend for shorter leases and the pressure on long-term security of income for landlords. It is unlikely the market will see average lease lengths return to the level at the start of 2019 for some time, if at all. Long leases continue to represent an operational risk and tenant demand will increasingly be shaped by a desire for flexibility and the capacity to adapt to evolving market trends.”

CREDIA also tracks lease retention which examines the proportion of tenants that executed the opportunity to renew or extend their lease at the end of their term, rather than vacate.

Lease retention gives a second snapshot of occupier sentiment by sector.

Month/Year Industrial Office Retail All
Jan-20 29.10% 35.00% 23.90% 29.80%
Feb-20 26.50% 29.70% 18.20% 23.40%
Mar-20 33.00% 34.20% 32.70% 30.90%
Apr-20 36.60% 26.40% 32.40% 30.00%
May-20 30.50% 28.10% 26.50% 26.90%
Jun-20 30.10% 21.50% 32.80% 25.10%
Jul-20 30.20% 22.80% 28.60% 24.50%
Aug-20 23.40% 26.50% 30.20% 24.50%
Sep-20 31.30% 22.80% 19.50% 22.20%
Oct-20 28.70% 30.50% 22.70% 25.80%

Caleb Dunn, commercial analyst at Re-Leased, said, “Lease retention rates demonstrate how differently each sector has responded to the uncertainty brought about by COVID. Industrial assets have remained stable with approximately a third of tenants renewing their leases at expiration. Office assets saw a drop-off in renewal rate from the start of the year to September, however October has shown early signs of improvement as more businesses returned to the office in some capacity. Retail properties have been largely inconsistent, with variations from month-to-month. These fluctuations likely mirror the sentiment around the ever-changing guidelines for retail operators, however, heading into the back end of the year, renewal rates are down compared to earlier in the year.”