The property indexing company, IPD, have recently released an analysis which shows that if the lease is signed for five years on a property, that property’s value is likely to decline by around two percent. This is despite the property having been successfully let out and this reduction is largely seen because many properties who lease for under five years have been seeing a significantly smaller amount of growth than those properties that have been leased for a longer term.
Landlords have been offering a great deal more flexibility to potential tenants in order to keep their properties full and to a large degree have been successful. It is currently estimated the vacancy rate is at about nine percent. Despite this, the value of property on the market has continued to fall.
On the other hand, if a property is let for 20 years or more, it is expected that the value of the property will be boosted around five percent. This is a considerable increase in the number of people who are signing up tenants to 20 year leases has significantly increased. One of the major attractions of signing such a long leases that tenants will be offered better rates to start off with.
This sort of divide in the market between prime property leasing, and non prime, is becoming increasingly common. The value of the better properties is increasing, while the value of the weaker properties is continuing to decrease.
A spokesperson from the company that conducted the study has commented, “This can be quite disconcerting for those who are involved in the secondary sector. Flexible leases have become more common with landlords and are a way for them to improve their income stream. However, because they are doing this the value of the property is decreasing and this can be a detriment to renting in the future.”