More tenants push for longer lease terms as office rents surge in Q3

But longer leases could bring even higher rents.

Soaring office rents are pushing more tenants to ask for longer lease terms of 5+5, 6+6 or 12 years with built-in rental review terms, a report by Colliers International revealed today.

The report showed an increasing number of tenants are negotiating for longer lease terms, given the common belief that longer leases translate to lower rents.

Longer leases provide tenants with more stability and helps mitigate high occupancy costs and capital expenditure incurred when relocating to new offices. 

“However, contrary to the common belief, longer lease terms do not generally equate to lower rents. Landlords may factor in potential rental upside if they are tied to a longer period of time. Hence, tenants who prefer a longer term will have to weigh the merits of an extended period vis-à-vis a higher rent,” said Marcus Loo, Executive Director of Office Services at Colliers International. 

Here’s more from Colliers:

In 3Q 2014, the office property market stayed on the growth path, with both rents and capital values charting higher grounds. 

In 3Q 2014, rental growth of Premium Grade office space in the Raffles Place/New Downtown micro-market has surged by 6.1 per cent quarter-on-quarter (QoQ) to S$11.67 per sq ft per month – the highest quarterly growth in 3 years.

Rents of Grade A office space in the same micro-market registered a milder climb of 2.9 per cent QoQ to S$10.25 per sq ft per month.

Meanwhile, rents of Grade A office space in other micro-markets in the Central Business District (CBD) also grew by between 0.4 per cent and 2.9 per cent QoQ during the quarter, towards the psychological rental benchmark level of S$10 per sq ft per month.