Short-Term Leases Slowly Gain Popularity

Contrary to the method of operation prior to the economic downturn, owners and tenants are now avoiding long-term leases. In Manhattan, where the average length of a lease is 10 years, industry experts have noticed a measurable increase in leases lasting one to three years. In fact, some landlords are capitalizing on the concept and using it as part of their marketing plans. For example, Paramount Group is advertising two-year leases in on of its Midtown buildings. And the Kushner Companies are aggressively promoting one- and two-year leases for office space on

, the small strip of land once touted as the most expensive piece of commercial real estate in the U.S.

Overall, in Manhattan, 21 percent of office leases that were signed in Q4 ’08 were for three years or less, up six percent from last year in the same quarter. Brokers say that smaller tenants, in particular, tend to favor short-term leases now, while larger tenants still prefer the stability of being locked in to a longer term.

According to real estate industry leader Cushman and Wakefield, at the end of February ‘09, the vacancy rate for the entire Manhattan office market had gone up over nine percent and vacancy rates for the more expensive buildings, known in the real estate industry as Class A buildings, are even higher at 10.6 percent.

Some analysts say that this is the first time that they can remember where both the owner and the tenant wanted to go short-term on their leases. In the past, one side usually used the short-term lease as a strategic tool, but with the high level of uncertainty, neither side is willing to over commit.

Source: NYTimes.com