How long is too long?

Office

An analysis of typical lease term in the Auckland office market

Pragmatically, businesses always want to keep costs down, especially through uncertain times. While rent, operating expenses and rent review structures are the obvious considerations, lease term is another factor of a lease agreement that should be considered.

While there is a growing ability for tenants and landlords to follow what leasing transaction rates have been struck, lease term remains less straightforward to unearth, especially in aggregation for market trends.

What then eventuates in this paradigm of limited data, is a reliance on estimations and anecdotal evidence rather than a more structured evidence-based approach enabling informed decision-making.

So, what is a typical lease term in the Auckland office market?

In a recent review of more than 250 leases in the Auckland CBD office and Metropolitan office markets in 2018 and 2019, we discovered that just over one-third of the leases had a lease term of between 2 and 4 years.

Many may consider that term shorter than expected.

When we dig deeper into the data some interesting trends arise.

  1. There was a higher number of lease transactions in the metropolitan (non-CBD) office market over this period. Vacancy rates in the CBD are already at record lows, leaving little choice in some negotiations.
  2. There is a higher volume of leasing activity from small to medium sized businesses. These businesses will typically occupy less space with shorter lease terms.
  3. There is considerable variation by location, quality and landlord. The North Shore office sector has a high proportion of smaller office premises and therefore smaller businesses wanting shorter lease terms. However, the CBD also had a high proportion of leases with less than 4-year terms.
  4. There has been a growing trend towards flexible workspaces which provides greater levels of flexibility on rent and lease term. Traditional landlords are matching to secure desirable tenants.

What the analysis highlights is that tenants need to know their local market to make sure what they sign-up for is comparable to the wider market. While it will often be on a case-by-case basis, collecting information about similar property lease agreements should be a key workplace strategy.

Indicative Lease Terms – A sample of 250 Auckland office leases between 2018 and 2019

office leasing lease term chart

Source: Colliers International Research

 

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