Why Having to Lease Your Property on a Short Term Basis is Not a Bad Thing

One of the major misconceptions about signing a new short term lease on commercial real estate is that it’s horrible. The fact is that every Landlord who leases property these days complains about the short term leases they are having to sign with tenants. To Landlords, short term leases are inconvenient, provide no long-term leasing security and are a pain to deal with, time-and-time again. However, leasing property or office space on short term basis can actually be a great thing for Landlords; especially considering the current economy. You see, short term leases are great in this economy because you are not locked-in at a low lease rental rate when the economy rises once again, which is predicted to be around the year 2010-2011. Let us explain this:

In today’s commercial real estate market, rental rates are down (very low), but we expect they will be coming back in the next couple years. So as market rental rates recover, you can capitalize on the “upswing” of rental rates by renewing your Tenants at new, higher, rental rates. Another great advantage in this is that shorter term leasing tenants usually expect much less in Tenant Improvements, which significantly helps landlords to conserve cash they would have to spend modifying the space. For example, when a tenant moves in on a short-term lease basis, they typically won’t be as adamant as getting every nook-and-cranny specialized for them. They are usually content with the office as is if it is in good condition, because their short term lease expiration allows them the freedom and flexibility to relocate or make changes in the near future.

Another great advantage is that in short term leases, there are less rental concessions and free rent given to a Tenant. Also, short term leases also require less money being paid out by the Landlord in leasing commissions. Longer term leases always demand more in leasing commissions from a Landlord.

If you walk away with something from this blog post, make it this: long term office space leases in this market are less desirable, because it locks a landlord to commit to a lower rental rate for a longer period of time that will outlast the market’s upswing in rental rates. So, as a landlord you will want to take advantage of the higher rents in the near future. The way to do this is to be strategic, and sign short term leases that mutually benefit you, and the Tenant. Remember, you don’t want to be locked in at low rental rates when the economy rises in a-year-to-two. If you are a landlord, don’t worry about short term leases, they are often better for you than you think.

Last updated: 11.06.2009 09:19 AM

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