Short leases bad for commercial property values, claims expert | 18 April 2012
The value of UK commercial property is falling because many landlords are offering their tenants shorter leases, according to an industry expert.
Andrew Gerrity, who is client manager at property analysts IPD, has claimed that landlords are offering shorter leases to prospective tenants because they are worried about leaving their investments vacant for too long.
However, in an interview with finfacts.ie, he explained how this tactic can often result in the value of a property dropping.
He explained: “As landlords have struggled to control vacancy rates they have shortened leases and offered more flexibility in an effort to let properties. This has kept vacancy rates relatively low, at about 8.7 per cent, but it has not stopped values falling in a market that demands safe assets and tenants.
“While the impact of vacancies on values is higher, landlords need to be aware than signing short leases is not necessarily a guarantee of value protection, and though it generates a higher yield initially, holding out for a tenant on a longer lease is more profitable in the long run.”
Gerrity was speaking after IPD released new figures suggesting that five year leases have increased in popularity by 26 per cent over the last five years. According to property-magazine.eu, its report suggested that signing a five-year lease results in a property’s value dipping by an average of 1.8 per cent.
Written by Joe Elvin on behalf of Qube Global Software
While posted by Qube Global Software all views expressed are not necessarily those of the company. All facts are verified where possible directly by the author.
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