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Industrial Lease Terms Plummet

Length drops from 50 months at the end of last year to 43.4 months in June. Tenants resist saddling themselves with commitment they may be unable to fulfill.

By John McCloud | Updated on July 22, 2009

INDIANAPOLIS-Average terms for industrial leases have fallen steeply since January. A new report from Grubb & Ellis reveals leases signed in the second quarter were the shortest of the decade at 43.4 months. The average at the end of 2008 was 50 months.

Grubb senior vice president and chief economist Bob Bach attributes the decline primarily to the fact the recession and weak corporate profits are prompting many tenants to choose short-term extensions as their leases expire instead of new five-year leases. “These tenants prefer the flexibility of a shorter commitment to the generous terms on offer by many landlords, who would prefer to lock in tenants for longer periods,” he says.

On the other hand, continues, not all landlords favor five-year terms under current conditions. “Some think three years is the optimum length because they believe that rental rates will begin to rebound before the five-year terms are up, and they want to be in a position to raise rents as soon as market conditions permit,” he explains.

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