2023 will see tenants negotiating shorter lease terms and with more “get out of jail” flexibility – this will impact US investment property values.
HOUSTON, dec. 9, 2022 /PRNewswire/ — Commercial real estate software provider Quarem released negotiation trends they see being implemented by corporate occupiers in 2023.
There have been dramatic shockwaves to the use of commercial real estate over the last 36 months in the US – a pandemic, social & political unrest, economic recession, and inflation to name a few. There has been much discussion and debate relative to the health and growth of the US CRE market, but little attention is paid to how the business terms in commercial leases are now being structured differently.
“The demand for commercial lease space has definitely changed over the last several years, but the structure of these leases has equally shifted in favor of the tenants,” Quarem President John Rice says. “The real question is what impact this will have on property valuations that rely heavily on credit-worthy, longer-term lease commitments.”
Related to this, the company has released the following negotiation trends they see for CRE in 2023:
Duration of Lease Terms: Lease terms (period between commencement and expiration dates) for both renewal and new leased space will continue to decrease.
Force Majeure: Tenants will negotiate hard for more defined force majeure language with expanded concessions and termination rights.
Termination Options: Termination options have moved from popular nice-to-haves to nearly imperative for tenants, especially if a longer-term lease is the landlord’s objective.
Conditions Precedent: Rather than tying lease obligations to a traditional co-tenancy/go-dark or property occupancy, this clause will continue in popularity with tenants as it is much broader in scope and can be tied to any number of tenant performance KPI metrics.
“Most CRE research focus on vacancy, absorption, rental rates, etc.; metrics that are vitally important. What we’re observing is based on the details in the leasing activity driving those stats.”
About Quarem: Quarem is a cloud-based CRE platform built to encapsulate and strategically organize all lease data, documents, critical dates and ASC 842/IFRS 16 compliance activities associated with CRE leases and property portfolios. The Quarem platform serves users on a global scale across 71 countries and spans across many different industries.
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