Trend to high flexibility in German lease terms continues in 2013

(lifePR) ( Frankfurt, )
The fourth edition of the IPD German Annual Lease Review, released by MSCI today and sponsored by alstria office REIT-AG, illustrates notable differences in lease terms for the different types of commercial property for the reporting year 2013.

Overall lease terms for office and retail leases still vary significantly. In the office sector, the average lease length was about 5.1 years in 2013 (including break options) whereas the corresponding lease terms for the retail sector is 7.5 years. However, in the office sector the average lease term increased notably compared to the previous year's figure of 4.2%. Without taking into account the break options the annual change is less significant as the average lease term in 2013 rose only from 5.2 to 5.3 years, showing no new trend towards longer leases.

Justus Vollrath, Executive Director, MSCI, points out the importance of break clauses in this context: "The relevance of break options in the office as well as the retail market decrease strongly in 2012 and 2013 compared to the previous years. In the office sector the share of leases with break options has fallen from 48% in 2011 to 13% in 2013. The strong decrease is not only to be seen for short term leases up to 5 years but also for lease terms of 6 to 10 years and 11 to 15 years respectively."

In addition, there was a significant and growing difference between retail and office in 2013 concerning rent free periods. For office leases, the average rent free period in Germany (equally weighted) increased to 14.4% of the total lease term (9.2 months) compared to 6.2% or 3.9 months respectively in 2012. In contrast the average rent free period in the retail sector went down to 2.9% or 2.6 months compared to 3.1% or 3 months in the previous year.

The office sector saw strong differences between the local markets. In 2013 there is a wide range of rent free periods between 1.6 months in Stuttgart and 14.5 months in Hamburg. If the rent free periods are weighted by rent passing the figure for Hamburg decreases to 5.6 months showing that landlords give fewer incentives for new lease contracts on higher rent levels.

Trend to high flexibility in German lease terms continues in 2013 Frankfurt, 20 October 2014: The fourth edition of the IPD German Annual Lease Review, released by MSCI today and sponsored by alstria office REIT-AG, illustrates notable differences in lease terms for the different types of commercial property for the reporting year 2013.

Overall lease terms for office and retail leases still vary significantly. In the office sector, the average lease length was about 5.1 years in 2013 (including break options) whereas the corresponding lease terms for the retail sector is 7.5 years. However, in the office sector the average lease term increased notably compared to the previous year's figure of 4.2%. Without taking into account the break options the annual change is less significant as the average lease term in 2013 rose only from 5.2 to 5.3 years, showing no new trend towards longer leases.

Justus Vollrath, Executive Director, MSCI, points out the importance of break clauses in this context: "The relevance of break options in the office as well as the retail market decrease strongly in 2012 and 2013 compared to the previous years. In the office sector the share of leases with break options has fallen from 48% in 2011 to 13% in 2013. The strong decrease is not only to be seen for short term leases up to 5 years but also for lease terms of 6 to 10 years and 11 to 15 years respectively."

In addition, there was a significant and growing difference between retail and office in 2013 concerning rent free periods. For office leases, the average rent free period in Germany (equally weighted) increased to 14.4% of the total lease term (9.2 months) compared to 6.2% or 3.9 months respectively in 2012. In contrast the average rent free period in the retail sector went down to 2.9% or 2.6 months compared to 3.1% or 3 months in the previous year.

The office sector saw strong differences between the local markets. In 2013 there is a wide range of rent free periods between 1.6 months in Stuttgart and 14.5 months in Hamburg. If the rent free periods are weighted by rent passing the figure for Hamburg decreases to 5.6 months showing that landlords give fewer incentives for new lease contracts on higher rent levels.

Olivier Elamine, CEO of study sponsors alstria, commented: "The IPD German Annual Lease Review reveals remarkable differences between single markets and sectors and underlines the need for detailed local knowledge in order to be successful and flexible as a landlord in continuous changing markets."

The data sample of the IPD German Annual Lease Review is based on over 60,000 leases which have been newly signed in the respective years within the period 2006 to 2013.

Olivier Elamine, CEO of study sponsors alstria, commented: "The IPD German Annual Lease Review reveals remarkable differences between single markets and sectors and underlines the need for detailed local knowledge in order to be successful and flexible as a landlord in continuous changing markets."

The data sample of the IPD German Annual Lease Review is based on over 60,000 leases which have been newly signed in the respective years within the period 2006 to 2013.
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