Commercial real estate has yet to fully stabilize after its multiple challenges in the past two years. Things had barely stablized when the Ukraine and Russia war brought everything back into turmoil. The industry has seen a fair share of rapidly changing trends, one of which affects suburban lease agreements.

According to recently collected data, there seems to be an increase in the demand for shorter suburban lease agreements. This trend comes as a surprise because commercial real estate has historically inclined more towards the commercial part of bigger cities. Even accounting for the recent shift to smaller cities doesn’t explain why there is market demand for short-term leases rather than long-term.

This blog post will explore the potential reasons to give you a better idea about the current situation.

What Are Suburban Lease Agreements?

Suburban lease agreements refer to commercial real estate leases for offices, warehouses, multifamily units, etc., in the suburban parts of the US. Shorter suburban lease agreements mean clients opt for lease agreements that last around six months or less.

A lease agreement typically lasts one year or more since it gives businesses better assurance about their location.

Reasons behind the Increase in Shorter Suburban Lease Agreements

It isn’t evident what is causing the demand for shorter suburban lease agreements. However, as industry experts, we know some factors that might be contributing to the cause:

1. Inflation and Interest Rates

Inflation and interest rates are at an all-time high due to the pandemic’s combined impact and the fuel crisis. These factors have led to an increase in commercial real estate rates, especially in bigger cities.

Hence, several businesses are shifting offices to the suburbs if they can. The rent is far cheaper, and the inflation-related migration keeps their talent pools relatively similar. Furthermore, most businesses don’t know if they will remain in the area long, leading them to choose shorter leases.

2. Uncertainty

There is extensive uncertainty about the future for several reasons. Firstly, the Ukraine–Russia war is ongoing, and it is difficult to stipulate when the conflict will end. Secondly, economic recovery has been relatively shaky, and businesses are still trying to cope with the change in consumption and working trends.

Lastly, the climate crisis has worsened, and there is pressure to take corrective action soon. Overall, the uncertainty is high, and leaders try to keep things as flexible as possible.

3. The Shift in Office Culture

‘Return to Office’ is the mantra most organizations have opted for to motivate employees to work from the office again. However, they are not as successful as they hoped, with people resisting the return and demanding flexible working arrangements.

The shift in preference has pushed employers to reconsider space requirements, making them opt for shorter leases. They may need to choose a bigger or smaller space based on the number of employees working from the office, so they want to keep their options open.

 

Wrapping Up

We hope this blog clarified the shift towards shorter suburban lease agreements. This understanding will be critical when designing your commercial real estate portfolio and will ensure higher profitability. Please contact us to find commercial real estate investments with high ROI.

CHRE has been in the market for several years, and we will leverage our expertise to provide the best services.