What Re-Leased’s data reveals about… landlords’ vacancy risk

Leases getting shorter and occupiers committing to shorter tenancies seem to be pandemic-driven trends. But as Re-Leased’s data shows, reality is a little more complex.

Tapping into tens of thousands of leases across the UK and Australia, Re-Leased offers a snapshot of how occupancy has changed since March 2020.

What it reveals is a sharp divide among both commercial sectors and regions. While the percentage of rolling leases – ones with no agreed expiry – have been steadily climbing in the UK to more than 25%, the reverse is true in Australia.

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This presents a potential risk to UK landlords, given the uncertainty of future occupancy and cash flow within rolling leases.

Surge in office uncertainty

Office vacancy risk has risen more steeply than in either retail or industrial in the UK. Since March 2020, the percentage of rolling leases has risen from less than 14% to a high of 24% in May 2022.

By contrast, retail and industrial have been relatively steady, both within a percentage point of where they were at the start of the pandemic (though industrial has, by far, the highest proportion of rolling leases at nearly 37%).

The impact of the pandemic appears to be reversing in Australia. Having risen from 8.4% to a high of 13.7%, rolling leases in the office sector have trended downward once again, reaching 10.4% in May this year.

Industrial and retail flip Down Under

When considering occupancy – rather than the risk of vacancy – the overarching trends in the UK have been consistent. Industrial has outperformed every other sector throughout the last two years, averaging 80.6% (by number, rather than size, of properties). Overall occupancy across all sectors has hovered around 70% in this period.

In Australia, however, industrial occupancy overtook retail in December 2020, and the gap has steadily widened. But while this could be good news for industrial landlords, that occupancy is also shakier. The percentage of rolling leases in the sector has risen from about 20% to more than 26%, while retail hovers at around 11.6%.

Tom Wallace, CEO of Re-Leased, comments “Comparing vacancy risk between the two countries, we can see tenants are still wary in both regions of committing to longer leases due to the ongoing impacts of Covid. Instead, tenants are opting for rolling leases to manage the current uncertain times. This has ultimately produced a riskier operating environment for landlords in both regions.”