The propensity to break from a lease dropped significantly when compared to last year, the Strutt & Parker IPD Lease Events Review showed, with 43% of tenants exercising their right to break in 2007 and just 24% in 2008.

Offices in the South East attained the lowest propensity to break at 23% with major falls also in the Retail and Industrial sectors.

Andy Martin, Senior Partner, Strutt & Parker, comments:

“With rents falling, landlords are keener than ever to keep tenants in occupation. They are now confronting tenants with upcoming breaks and seeking to come to some sort of agreement with them. The worst situation to have at the moment is a void.”

The Strutt & Parker IPD Lease Events Review provides empirical evidence on the likelihood of the different events which impact upon property cash flows, including lease expiries, break clauses, defaults and void period. The figures for 2008 are based on analysis of approximately 90,000 leases.

In an environment of shorter lease lengths, lease analysis is critical for investors. Events such as defaults, expiry and breaks have greater impact on property valuations. Reflecting on the investment market and the impact of long leases Andy Martin continued:

“The lack of long leases is hampering an already starved investment market. Investors are really focused on certain income now, but with just over 15% of leases being for 10 years or more, there is much less potential for these people to buy that in 1992.”

Findings also included:

• Following a lease renewal, 23% of leases were re-let for the same annual rent passing.

• The rate of new lettings was highest in the Retail sector, 33%, whilst voids at year end were highest in the Office sector, 50%.

• The rate of liquidation / receivership in 2008 was 5.5% The highest was in the Retail sector at 6.5% and lowest on tenants in the Office sector, 4.2%

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