Monday, March 22, 2010

Short term leases are a new trend for commercial real estate

Posted by: Dave Simonsen
Industrial Specialist
775 336 4667

Dave has more than 21 years experience as a commercial real estate broker. Dave exclusively works with industrial tenants, buyers, developers, landlords and land owners. He has represented companies such as AT&T, Barnes & Noble, Converse, DHL Worldwide, Delta Industries, Hawco Development, Lucent Technologies, IBM, Hopkins Distribution, Nextel, NEC, Sherwin-Williams Company, and UPS.

Industrial lease lengths are shortening. A few years ago, average lease length in the Reno/Sparks industrial marketplace was 5 years. Now days, tenants in need of space are requesting shorter term leases. Two large (176K & 165K) leases were completed last year at very low rental rates on a month-to-month basis with either party able to give the other party 60 days written notice to terminate. Early this year a 240K month-to-month lease was concluded. In addition, there are two more large leases being negotiated on short term leases.

Under the current market conditions, short term leases are viewed as favorable to both the landlord and tenant. Tenants are justifiably nervous and like the shorter commitment to enable them to be nimble in the event of a double dip in the economy. Landlord like the short term because they are hesitant to lock in low rental rates. Landlords can live with a temporary fall in value which has potential to remain temporary if the term is month-to-month but the loss is locked in on a 5 year deal, the landlord has just guaranteed a long term devaluing of his building by locking in a low rent. The value of a building is predicated upon the income stream. A long term low rent lease guarantees a long term devaluing of the building. Another positive for a landlord is the tenants are in a poor position to ask for up front improvements with a short term lease which could save the landlord up front improvement costs.

With lenders shying away from tenant improvement loans and questions still lingering through the Reno industrial market regarding the “recovery”, short term deals remain in vogue.

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