What The Success of Short Term Leases in APAC Means For The US Office Market

Much has been said about short term leases this year, but if their success in the Asia-Pacific is any indication, the trend shouldn’t be too concerning in the US—at least according to a few CBRE experts. 

“More than 50% of our occupiers across Asia Pacific are thinking about expanding their portfolios over the next two to three years,” CBRE’s Henry Chin told Spencer Levy in a recent podcast. “But they all trust the differences between the multinationals that the Western companies versus the Asian companies. I think the Asian companies … more than 66% of them say they want to expand in a bigger way. But because our leases tend to be relatively short three years, we haven’t seen much of a change in terms of the length of the dates.”

Levy countered that many US investors and occupiers correlate the rise of flex space and the dawn of shorter term reasons with concerns about value—but Chin says those worries are overblown. In Asian countries, where shorter term leases are more the norm, values are actually increasing and cap rates are compressing. 

“The beauty of a shorter lease is your renewal lease is going to be really reflective of the market conditions. If your market is on the rise, in recovery mode … actually it’s more favorable for the investors,” Chin said. “But as of now, I think clearly the market conditions are very favorable to the tenant side.”

Chin noted that once the COVID crisis is behind us, capital values will likely actually increase.