The following Q&A was completed as part of our conversational Commercial Real Estate FAQ Interview Series, we hope you find it helpful:
When looking at the typical retail lease, a number you can count on is 5 years. About 40% of retail leases are around the 5 year mark, but you may run into shorter leases of 3 years, those around 7 years, and those up to 10 years for high credit and well established tenants. Those tenants who choose 10 year leases often do so knowing they’ll remain in business, and they’d prefer to pay the market rate now for that span of time than to have their rates readjusted as time goes on.
Richard Wilson: How long is the typical commercial property retail lease for?
S.L. Van Der Zanden: Well, it’s anywhere between 3 and 10 years. Most of them are – 5 is probably 40% of them, 40% of them are 5 year. There are reasons to do shorter leases like a 3 year lease, and there’s reasons to do a 7 that’s not quite a 10. A 10 is probably a high credit, national credit, tenant that has been in business a long time, knows they’re going to be in business a long time, and has learned that agreeing to rates today are almost always below market by the time 10 years turns around. So they save money, rather than doing shorter leases that get readjusted to market every 3 years or whatever. So if you have to just proform with something, you could use 5 years.
Richard: Right, okay.