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Commercial lease lengths are getting longer in Ireland and landlords are resisting the temptation to ask for high but unsustainable rents.
According to Goodbody Stockbrokers, the current preference of landlords for rent frees, breaks and contributions rather than short-term record rents ensures the focus is on long-term stability rather than short-term gain value.
This preference comes as tenant demand surges and supply remains limited, it is also partly the result of the ban on upward-only rent reviews for new leases from 2010 onwards.
“The alternative is to focus on strengthening effective or net income streams,” Goodbody Real Estate Analyst Colm Lauder said.
Research from Knight Frank showed that prime Dublin office leases have increased 23% from 10.4 years in 2014 to 12.8 years in 2017.
The research correlates with Goodbody’s own findings, which showed 54% of leases in 2016 were longer than eight years. It was repeated again in 2017 with 50% of leases longer than eight years.
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The trend of longer leases can be clearly seen in the lettings activity of REITs Green and Hibernia. Both property investment companies continued to increase their weighted average unexpired lease term as the market strengthened in 2017.
This trend contrasts with the growing trends for shorter and more flexible leases in the U.K. where almost two-fifths of leases signed in 2017 were for less than four years. Only 20% of new leases were for longer than 10 years.
“There is currently a stark difference between income stream health in the Dublin versus London office market," Lauder said. "In Dublin tight supply and increasingly aggressive occupiers are pushing terms outwards, whereas in the U.K., growing uncertainty surrounding Brexit and the wider economy is seeing tenants push for increased flexibility.”
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