1. April 2019

  2. When less is not always more

    11 April 2019
    Average office lease lengths in London are nearly a quarter of the length that they were back in the mid-1990s. During the intervening years, occupiers have demonstrated a preference for shorter leases and this has seen the average term fall from over 20 years to the 5.6 year mark that we have today.
    Various factors have contributed to this not least the balance sheet treatment of lease liabilities and a desire to mitigate these by taking shorter leases. It’s also pretty rare to find a business that is planning ahead more than five years so making a commitment to your workplace for around about the same period is an alignment of strategy and resource. 

    And, of course, most recently we have seen the impact on the market from the co-working and serviced office operators with their ‘plug-and-play’ offer which means you can walk in and take an office for a month, a week, a day or even an hour.

    However, behind the statistical averages in our latest London office lease analysis there are different stories to tell. For example, the length of leases taken by public sector occupiers has only fallen by 10% in the last decade compared to the London-wide average of 46%. But the average for media and tech businesses – which have driven so much office demand across the capital– is now just four years.

    Not surprisingly, the drop in average lease lengths is most pronounced in the sub-10,000 sq ft market which has been most impacted by the rise of co-working. These have reduced by 50% in the past 10 years, but for office requirements of over 50,000 sq ft, the leases agreed are only 25% shorter than they were a decade ago.

    Interestingly, there is now some anecdotal evidence that occupiers who have been drawn to the super flexible, co-working environments are now returning to the ‘traditional’ market and the benefits that a conventional lease can bring. Some have found that the anonymity and lack of privacy in co-working facilities and also the penchant for providers to move their customers around their buildings to accommodate incomers is not to their liking.

    Will average office lease lengths in London fall further? It feels like - although there will be variations across different sectors and types of occupier - the market is now reaching a point of relative equilibrium which reconciles the needs of both occupier and office provider. 

    Businesses clearly need flexibility and want to reduce long-term commitments but also realise that achieving this can come at an operational and financial cost. For many office occupiers, when it comes to lease lengths, less is not always more.

    The Author
    Guy Grantham
    Director | Offices research

    +44 20 7344 6793

    +44 779 596 3710