For most of the 1960-2010 period, commercial tenants could receive a strong benefit by committing themselves to long-term leases. Unless you were dealing with the obvious coastal markets where stock-like returns from real estate is taken for granted, commercial landlords prized the income security that came with a tenant covenanting to stay on the premises for three, five, or even ten years.
From the tenant’s point of view, the advantage of long-term leases was the certainty of rent obligations as well as the discount that could be received by paying lower monthly rents.
The landlord’s advantage was that it would not have to deal with vacancies and the high transaction costs associated with tenant turnover.
In the past few years, however, commercial tenants have struggled to secure the traditional discounts associated with long-term leasing commitments and, in some instances, landlords have outright refused to consider extending long-term leases to tenants … Read the rest of this article!