The UK commercial real estate market is witnessing a shift towards longer lease agreements across various sectors. In this article, we delve into the key findings of the report, highlighting trends in office, retail, and industrial leasing.
69% growth in 3-5 year office leases signals a preference for stability
Retail lease lengths rebound, up 32% from 2023
Three-year steadiness in industrial lease durations reflects the resilience of the asset class
The average office lease length increased by 27%, rising from 2.9 years in Q1 2023 to 3.7 years in Q1 2024. This marks the end of a three-year decline, indicating a shift towards stability. Companies are now favouring stable leases to maintain consistent workspaces for employees who split their time between home and the office, driven by the adoption of hybrid work models.
Notably, leases with a duration of between 3-5 years surged by 69% in Q1 of 2024 compared to the same period in 2023. Leases lasting 5-10 years increased by 28%, and leases of 10+ years more than doubled from Q1 2023. There is a noticeable increase in demand for high-quality prime office spaces and green buildings. This surge in demand drives longer lease commitments to secure prime locations in this flight to quality.
Although short-term flexible leases remain popular, Q1 2024 saw a decline with a 19% reduction in leases of 12 months or less and a 15% decrease in 1–3-year leases.
The retail sector shows renewed optimism with the average retail lease length increasing by 32%, from 37 months in Q1 2023 to 49 months in Q1 2024. This rise indicates a strong commitment to physical retail spaces, with landlords offering favourable terms to attract and retain tenants, reflecting a 44% rebound from the lows of 2021.
The industrial sector remains steady at a 52-month average for the third consecutive year in Q1 2024. Business occupiers are seeking flexible logistics spaces with adaptable lease terms to meet their dynamic needs. This trend coexists with the traditional logistics market. The high demand for industrial and logistics spaces, particularly near major transport hubs, continues to support stability in this asset class.
Tom Wallace, CEO of Re-Leased, said: "There are a number of driving forces increasing the shift towards longer lease agreements primarily across office and retail. The UK commercial real estate market is showing signs of stability, with businesses and property owners adapting to new market dynamics.
In the office sector, we see a continued flight to quality as companies are committing to extended leases to secure prime locations. Retail shows optimism with extended leases, signalling a strong commitment to physical stores. The industrial sector remains stable, with a blend of longer leases and flexible terms to meet evolving needs. This shift towards longer leases highlights the mutual desire for stability and strategic planning among tenants and landlords."
This data has been collected, anonymised and aggregated from over 95,000 active commercial leases. All data that has been aggregated for this report is in line with the Re-Leased Terms and Conditions as at the time of publishing.
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2024 marks a year of cautious optimism in UK commercial real estate. The State of CRE Leasing Report provides essential data to help the industry make informed decisions and benchmark performance.