by Calculated Risk on 3/10/2009 06:13:00 PM

From the NY Times: Rising Appeal of Short-Term Leases

Both tenants and landlords seem to be growing afraid of commitment these days. With the economic outlook murky at best, fewer of them want to tie themselves to long leases.

In Manhattan, where office leases often last 10 years, there has been a noticeable uptick recently of leases lasting only one to three years. ...

In all of Manhattan, 21 percent of the office leases that were signed in the fourth quarter of 2008 were for three years or less, compared with 15 percent in the corresponding quarter a year earlier, according to Cushman & Wakefield, a real estate brokerage firm that compiles data on commercial transactions. Brokers say they expect short-term leases to become even more fashionable this year.

“There’s a lot of anxiety out there, and short-term decisions are easier to rationalize,” said David L. Hoffman Jr., a principal at Colliers ABR, a real estate services company.
...
[Jeff Furber, the chief executive of AEW Capital Management] said that tenants were driving the demand for short-term contracts and that he would be happy to sign office leases for five years or more. “But business conditions are deteriorating so rapidly,” Mr. Furber said. “Tenants are saying that they’re just not sure how much space they’ll need in a year or two, so it is hard for them to commit.”
...
“This is the first time that I can remember when both landlords and tenants want to do short-term leases,” [Ken Perry, the chief investment officer and director of asset management for the Swig Company] said.

He said that usually one side or the other saw an advantage in this approach, depending on which direction rents were thought to be heading. “But with all of this uncertainty in the markets, neither side wants to go long term.”

As Mr. Perry notes, usually one party or the other wants to go long term. Now landlords don't want to go long term - because they are hoping rents will recover - and tenants don't want to go long term because business conditions are deteriorating rapidly and they don't want to be stuck with excess space. Interesting times ...

Update: to be clear - it is a tenant market - so whatever the tenant wants, the tenant gets.