Tenants’ propensity to break their leases has increased by a third, according to the latest Strutt & Parker / IPD Lease Events Review.

The Annual Review, which is to be presented on Friday and is launched together with the IPF's research programme on the robustness of property income, reveals tenants' propensity to exercise their break clauses rose from 24% in last year's findings to 33% according to the latest analysis.

This section of the Lease Events Review was based upon approximately 2,000 units with a total annual estimated rental value of £162m.

Malcolm Frodsham, Research Director at IPD said: "This result can be explained in terms of depreciation, with some units becoming less functionally or physically attractive to tenants and therefore not achieving a renewal and hence a lower subsequent rent."

On both a weighted and unweighted basis, tenants in Office properties had a higher propensity to break at 56% and 38%, respectively.

At the all property level, the propensity of tenants to exercise a break clause over the history of the series was higher on a weighted basis than on an unweighted basis with the exception of 2008. Between 2000 and 2007, on an unweighted basis, the propensity to break rose from 15% to 36%. On a weighted basis the rate increased from 16% to 43%.

However, in 2008 the propensity to break on both a weighted and unweighted basis fell back to 24%. In 2009 the propensity to break on both a weighted and unweighted basis increased again and indeed reached a record high on a weighted basis. In 2009, the propensity to break, returned to previous levels having dipped significantly in 2008.

The research draws on IPD's unique databank, which comprises of an estimated 55% of all professionally-managed property investment in the UK. The analysis period covers 12 years from the beginning of 1998 up to the end of 2009. The key to the analysis has been to concentrate on those properties held as standing investments and to compare the tenant records in the valuation in those buildings at the end of the preceding year with the valuation tenant records at the end of the year.

Changes in the tenant records between the two valuation dates have been allocated to a particular event; lease expiry, break clause exercised or default. The analysis includes at least 40,000 leases in each year.

The Review also showed that fewer than four out of 10 commercial property leases renew following expiry: renewals were 32% among Industrials, while Retail and Office properties were 39% and 38%, respectively. The all property average was, therefore, 36%. The proportion of vacancies following a lease expiry was 42%.

Drilling deeper into the market, the lowest rate of lease renewal among the segments were found in provincial Industrials, at 30% and 32%, in the South East and Rest of UK, respectively. City Offices were third from bottom, at 33%. At the other end of the spectrum was West End Offices, which achieved the highest lease renewal rate at 46%.

Within the Retail sector, a high proportion of lease expiries are within Shopping Centres. The renewal rate in Standard Retail units in the South East, Rest of UK and Shopping Centres was identical at 40% whilst the rate in Retail warehouses was a touch lower at 34%.

The rate of vacancies at year end repeated the pattern of 2008 across the four retail segments: highest in Retail Warehouses, at 43%, and lowest in Shopping Centres, at 28%.

West End Offices recorded an improved set of results on an unweighted basis for both lease renewals, 46% from 29%, and Vacancies at year end, 29% from 52%. In other regions, including the City, results were similar to 2008.

Andy Martin, Senior Partner at Strutt & Parker said: "We have been involved with IPD in the collating and production of this series for some while even before we went public (8) years ago. I believe it is essential that anybody involved in real estate investment and value decisions recognise the shift in risk in lease length and the prospects and expiry or break assumed within the all risk yield. As the market focuses on income the series is becoming increasingly relevant. The fact we have now teamed up with the IPF Research Programme to delve further into this subject is I hope a good legacy for my past involvement in this great organisation."

Malcolm Frodsham, Research Director at IPD said: "In a shorter lease and income preservation environment, lease level analysis is crucial for underlying investors and lending banks. Lease events - such as defaults, expiry and breaks - have a much greater effect on overall property valuations. Shorter lease lengths are increasing the chance of landlords experiencing more frequent vacancy periods."

The Review also reveals that when a lease reaches expiry, the proportion of units let for a lower rent is significantly lower for renewals compared to new lettings at 36% and 56%, respectively. This suggests that units becoming vacant following a lease expiry are less attractive to tenants than units that are renewed at lease expiry and therefore command a lower rent.