The growing tenant demand for shorter office lease terms is creating unexpected complications and costs in commercial real estate deals, according to a senior industry expert.
Scott Savacool, Senior Vice President of Office Occupier Services Division at Colliers, says an increasing number of tenants are entering negotiations with rigid short-term requirements. “A lot of my clients right now, right out of the gate, they’re like, ‘Yeah, we’re not committing to anything more than three,'” Savacool notes. This stance, he argues, is creating significant friction in deal-making.
According to Savacool, the implications of this short-term mindset often catch tenants off guard. “If you can actually find a landlord that’s willing to entertain a three year lease, they’re certainly not going to put any capital into the deal,” he explains. “You’re not going to get any tenant improvements. You’re not going to get any free rent. You’re lucky if they’ll just pay the commission.”
Savacool points to a critical market dynamic that many tenants are only now beginning to understand. “The curtain has been pulled back a little bit, and people realize that the lenders are now really getting into the weeds with the building owners,” he says. This increased lender scrutiny makes it difficult for building owners to accept shorter terms, even if they wanted to.
While most deals eventually reach completion, Savacool notes the process has become significantly more complex. “Nine times out of 10 they’re like, ‘Oh, absolutely.’ But the unfortunate thing is, you may have wasted two, three months getting to that process,” he explains regarding tenants who eventually accept longer terms after understanding the full cost implications of short-term leases.
The industry appears to be moving toward a new normal where deal timelines are extended but outcomes remain largely traditional. As Savacool observes, “We’re getting to the right outcome on 95% of the transactions we’re working on, but unfortunately, it’s taking two or three times longer to get there than it used to.”
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