How long should your warehouse lease be?
04 june 2019
The typical lease length on the Polish industrial market is three to five years. However, leases for a minimum period of five years are becoming increasingly common in developers’ strategies for new projects. This trend is most notable among all leading industrial market players. A business strategy of a real estate landlord is not the only factor having an effect on the lease length. The kind of the tenant’s business activity and the scale of adaptation required for leased space are also relevant issues.
Who rents a warehouse space for a long time?
Manufacturing tenants tend to opt for leases of more than five years, driven by both the costs of adaptation of space to manufacturing requirements and capital expenditure on machinery. Such tenants favour long-term leases as relocation costs are very high. The same holds true for the logistics sector in which tenants tend to expect a high number of doors and docks.
Modifications generate additional costs
The general rule is that the more modifications a tenant requires, the longer the lease commitment a developer will expect. This is due to landlords’ need to depreciate costs of such changes. A case-by-case approach is naturally required, because the degree of interference in leased space may vary considerably as in the case of a growing number of BTS projects developed to satisfy specific operational needs.
BTS schemes are tailored to a client’s exact requirements and usually incorporate a high number of adaptation works contracted at a project planning or construction stage. BTS facilities are generally leased for a minimum term of seven to ten years.
Short-term? - considered on a case-bycase basis
Does it mean that there are no opportunities on the market for those looking for short-term warehouse space? There is an exception to every rule and some leases are made for a year or two. Such leases are, however, quite scarce and considered by developers on a case-by-case basis – there are a small part of the demand structure, representing only 5% of all leases concluded in the last 12 months, i.e. from the beginning of April 2018 to the end of March 2019.
Choosing a preferred lease length is an individual decision of each company and decision drivers tend to vary broadly. And yet, long-term leases are more likely to provide tenants with better commercial lease conditions than, for instance, three-year contracts.
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