In one sign of a strengthening office market, tenants that signed short-term leases during the recession are now committing to longer-term deals, one landlord said.
“More and more tenants are willing to commit to longer-term leases as the economy continues to improve,” said Matthew Malatich, assistant director of leasing at Hilton Realty, a Princeton-based real estate developer.
“During the recession, we were seeing a lot of prospects out looking for inexpensive space, and many wanted as short a lease term as possible,” usually between one and three years, given the uncertainty in the economy, he said. But now, in a healthier economy, tenants are “less likely to demand short-term leases,” while many landlords are requiring longer-term leases, usually at least five years for existing space, he said.
Beginning in the fourth quarter of 2010, the company completed a number of five-year leases, including a 10,000-square-foot deal with the Federal Deposit Insurance Corp. at 104 Interchange Plaza, in Monroe. Tenants, moreover, have been signing at market rents, rather than at the reduced rates that were common during the downturn, Malatich said.
Landlords prefer longer-term leases, which provide more stability in an asset by having less tenant rollover in the short term, he said. A commitment of five years or more also “may allow a landlord to justify investment and capital improvements, upgrading the building.”
Tenant improvements were not offered with short-term deals, since the cost of the improvements were difficult to amortize, he said: “We couldn’t justify spending the money to renovate or improve spaces.”
