Australian Office Lease Lengths Stabilise and Retail Market Divides

Office Lease Lengths Halt their 5-year Decline, Marking Stabilisation

Blue-chip Retailers Opt for 10-Year Leases in Prime Locations, While Secondary Markets Favour Short-term Leases

The Australian office market is experiencing stabilisation, with average lease lengths holding steady at approximately 30 months for two consecutive years, according to new data from Re-Leased. This stabilisation is reflected in the slight but meaningful increase in the average lease length, which rose from 29.5 months in Q1 2023 to 29.8 months in Q1 2024. This increment, while modest, ends the continual decline from 2019.

In Q1 2024, the Australian office market saw a 9% decrease in leases of 12 months or less from Q1 2023, signalling tenants have a better understanding of their long-term office requirements in a post-pandemic environment. Lease commitments between 1-3 years climbed by 4.5%, and 3-5 years increased by 10% compared to Q1 2023.

High-quality, prime office spaces in desirable locations continue to attract tenants as we see the flight to quality continue. At the same time there has also been a rise in landlords’ willingness to offer favourable lease terms or incentives to secure longer commitments from tenants. This strategy helps landlords reduce their risk of increased vacancies in a high-interest rate environment.

In Q1 2024, Australian retail leases averaged 38 months. The market shows a clear divide between prime and secondary locations. Prime retail spaces are trending toward long-term commitments, with blue-chip retailers influencing an increase in 10-year leases by 62% from Q1 2023 to Q1 2024. This highlights dedication to secure optimal spaces for their businesses. Conversely, the secondary retail market favours short-term leases, with the number of leases less than or equal to 12 months increasing by 28%, as tenants are unwilling to make a long-term commitment given the current economic environment and landlords are accepting lower terms to minimise vacancies.

Tom Wallace, CEO of Re-Leased, said: “Our latest data underscores the nuanced dynamics within the Australian commercial real estate market. In the office sector, we are witnessing a stabilisation after years of decline, with average lease lengths holding consistent. This is a positive sign that tenants are increasingly confident in making longer-term commitments as they adjust to the flexible work expectations of their workforce.

In the retail sector, the gap between secondary and prime locations is becoming more evident. Secondary markets are adjusting with shorter leases to keep occupancy levels stable during challenging economic times. On the other hand, top-tier retailers are showing a growing interest in securing prime spaces with 10-year leases, highlighting their long-term strategic investments.”

Re-Leased’s analysis is based on live data from over 80,000 commercial leases on its platform in Australia.