When their leases come up for renewal, many commercial real estate tenants are asking their landlords for short-term extensions.
In fact, the average terms of office and industrial leases signed in the second quarter of 2009 were the shortest of the decade, according to a report this week by research firm Grubb and Ellis.
In metro Atlanta, the average terms of industrial leases — 36 months— was the shortest of the decade, the report said. Office leases here are near their historical average of 57 months, the report said, in part because of “blend and extend” leases in which tenants renew early at a lower rate but extend the term of the lease. Nationally, the average terms were 43.4 months for industrial leases and 52.3 months for office leases, the report said.
It’s the effect of the recession, said Dan Wagner, research manager for Grubb and Ellis in Atlanta. “Landlords want to secure tenancy for as long a term as they can because of the guaranteed income,” Wagner said. “Tenants are saying ‘I’ll commit for another five years, but I need you to drop my rate today.’ Landlords are willing to do this because of the leasing environment. Not a lot of companies are expanding or coming to the city.”
On the flip side, there’s never been a better time to sign a long-term lease. “It’s one of the least costly office markets in recent history, but companies want to play it safe,” Wagner said
Asking rents in Atlanta are down, but the drop is not equivalent to the drop in activity in the marketplace, he said. Landlords are more willing to make concessions such as tenant improvement allowances to keeps rent strong until the market rebounds.
In metro Atlanta, the average asking rent for Class A office space was $23.50 a square foot in second quarter 2009, down just slightly from $23.89 a year ago.
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