According to an article in the Dallas Morning News, many companies are opting for a shorter term lease due to the instability in the economy and the uncertainty about the future.
The article said:
“Companies aren’t sure how much real estate they will need in a quarter or two, let alone years and years ahead. That was the case with digital marketing firm Razor-360, which recently rented offices in Addison for just 16 months.”
Usually, commercial leases run about 5 years, not a year and a half. But with the rise in corporate bankruptcy many commercial real estate properties are sitting empty, making many commercial real estate investors nervous. Several commercial real estate companies have already faced bankruptcy and many properties nationwide have faced foreclosure .
The article continued:
“Typically, real estate brokers and landlords turn their noses up at short-term leases. But in today’s economy, few want to turn away business… Net leasing is down by more than a half-million square feet so far this year in the Dallas area, which is putting pressure on investors. For business tenants willing to bite the bullet for a longer term, landlords are wheeling and dealing with rental rate concessions and other perks.”
Companies have good reason to be cautious as many are struggling to avoid bankruptcy and hold on to their market share. But if the commercial real estate industry experiences further price degradation we may begin to see a slew of foreclosures and Chapter 11 bankruptcies hitting the industry. Already commercial real estate foreclosures are rising quickly in Dallas-Fort Worth, which has experienced its largest number of commercial real estate foreclosures in 17 years.