Colliers Denmark Market Report 2024

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INDUSTRIAL & LOGISTICS - COLLIERS MARKET REPORT 2024

HOTEL INDUSTRIAL & LOGISTICS RETAIL RESIDENTIAL OFFICE

Benefits of flexible leases • Tenants’ market conditions and area requirements can change substantially in a brief period of time, which is why many are wary of committing to long leases. Flexible termination terms – and especially shorter-term commit ments – can be of immense value to many tenants, allowing land lords to ”trade” shorter-term com mitments for higher rents and therefore a higher ongoing return. • The normal risk of short-term com mitments – being left with empty premises – is limited in these years of historically low vacancy rates. • If a shorter commitment period is possible, a lease will appeal to more tenants and can limit or shorten periods of vacancy and reduce re-letting risk. • For some tenants, moving and finding new premises to fit out and adapt will be expensive. This is the case for some indus trial companies and companies with automated warehouse sys Can flexible lease agreements increase returns? Industrial and logistics leases have traditionally had long commitment periods with a non-terminability period of typically 5-15 years. From a landlord’s point of view, there are several good arguments for long commitment periods, such as reduced risk of vacancy, but there can also be benefits for both landlord and tenant with more flex ible contracts, which have become popular in the office segment in recent years. tems, for example, where the spe cial interior design requirements and especially the costs involved make it less likely that they will move. In other words: Whether the tenant is bound by non-ter minability is not necessarily deci sive for whether the tenant stays. Therefore, it is not always appro priate to negotiate a long lock-in period that is ”paid for” with, for example, lower rent or a tempo rary rent discount. Disadvantages of flexible leases • Risk of more vacancies and longer vacancy periods, as well as re-let ting risk. • Banks and mortgage lenders tra ditionally emphasise long-term commitments, so more flexible contracts can result in less favour able loan terms or – in the worst case scenario – loan denials. • Shorter lock-in periods can trigger higher yield requirements from prospective investors if a property needs to be sold. • Bespoke or ’built to suit’ proper ties can be particularly difficult to re-let, at least at the same rent as paid by the original tenant.