Office tenants demanding more flexibility as lease lengths drop almost 30%: Re-leased11 July 2023
The office market across Australia is experiencing a significant drop in the lease lengths tenants are taking out since COVID, according to new data from Re-Leased.
In the first quarter of 2019, the average office lease length stood at 41 months, or almost three and a half years. However, in Q1 2023, the average office lease length has dropped by 28%, settling at just 29.5 months, or just under two and a half years.
The data from Re-Leased, the commercial property management platform, also highlights a surge in the demand for short-term leases, particularly in the form of agreements up to 12 months.
In Q1 2019, office leases of 12 months or less made up 18% of all leases. In Q1 2023, those leases accounted for 33% of all leases – almost double the portion from 2019.
Leases of at least three years accounted for almost a third of leases in Q1 2019. Four years on, that has dropped to just 16%.
Re-Leased’s analysis is based on live data from over 40,000 commercial properties and 80,000 leases on its platform in Australia.
|Quarter||Avg. Office Lease Length (Months)|
Office Lease Lengths – 2019-Q1
|Less than or equal to 12 months||18.1%|
|12 – 36 months||46.1%|
|36 months – 60 months||28.4%|
|60 – 120 months||5.8%|
|Above 120 months||1.6%|
Office Lease Lengths 2023-Q1
|Less than or equal to 12 months||32.9%|
|12 – 36 months||51.4%|
|36 months – 60 months||12.6%|
|60 – 120 months||2.7%|
|Above 120 months||0.5%|
Tom Wallace, CEO of Re-Leased, said: “There are a number of forces driving the increased demand for shorter, more flexible lease terms from businesses. While the pandemic is now in the rear-view mirror, companies are still determining what their office requirements will be in this new world of hybrid work. Given this uncertainty, there is a clear reluctance to commit to a long-term lease, especially with the rise in flexible office providers.
However, this creates a great opportunity for landlords to respond to changing demands by offering simpler short-term leases which streamline negotiations and minimise the need to offer incentives. This responsiveness not only gets them a better return on the space, but it also helps to keep renewal rates high.”