The Strutt & Parker and IPD Lease Events Review looks at how lease events affect returns for investors.

The overall UK economy is taking a considerable toll on the tenants of the UK's buildings, as almost 60 percent of leases (weighted by rent passing) that expired by the end of last year were unable to be re-let  by Q2 2012- the highest level in the last decade. Adding to landlord's difficulties, struggling tenants - searching for opportunities to find lower rents and rent-free periods in a bid to alleviate their short-term cash flow woes - are increasingly exercising their right to exit a lease early. 48 percent left their leases at break - again, the highest proportion in over ten years.

Rental values are still over nine percent below their 2008 peak levels, and tenants, particularly in the office sector, are eager to take advantage of lower prices offered.

The effect on landlords' income streams will be considerable. Over the 12 months to June 2012, net income has grown by only 0.2 percent, while inflation was 2.8 percent, a result of the vacant leases and landlords slashing rents to let properties. Only 19 percent of leases that expired were renewed at a higher rent than previously.

The IPD / Strutt & Parker Lease Events Review measured over 93,000 across 2011 and 2012 to better analyse the effect of lease events (lease expiries, break clauses, defaults and vacancy rates) on commercial property investor cash flows.

Lease events review - key findings

• 59 percent of tenants vacated their property at the end of a lease, as measured by weighted rent passing - the highest number since 1998, when the research began. 
• This rose to 71 percent in the office segment, but was only 42 per cent in the retail sector. 
• Only 31 percent of tenants renewed their lease at expiry. 
• 52 percent of tenants did not exercise their break clause - and this rose to 75 percent in the retail sector. 
• In the office sector, 57 percent of tenants exercised their break. 
• Only 32 percent of properties achieved higher rental payments when re-let. 
• 5.7 percent of tenants defaulted or fell into liquidation in 2011, the highest since records began. This rose to 9.2 percent for the beleaguered shopping centre segment.

Find out more about IPD and how the research is conducted on their website.

View the presentation from the launch of Strutt & Parker and IPD's Lease Events Review here. If you have any questions please contact Strutt & Parker's Head of Research, Stephanie McMahon, using the link below.

Watch the speakers from the launch of the event discuss the importance and key findings of the Lease Events Review in the videos below.