Adapting to change: The impact of shorter lease terms on the investment landscape

The movement towards shorter lease terms is reshaping the legal and commercial foundations of property investment. Previously, the value of a commercial asset was defined by the length and security of its income stream, whereas today’s market is increasingly focused on flexibility. Tenants are prioritising agility — driven by hybrid working models (particularly following the Covid-19 pandemic), rapidly changing business needs, and a desire to reduce long-term commitments.

For investors and developers, this shift presents a complex challenge, and the key question is how to meet occupiers’ need for agility without undermining asset stability or long-term performance.

This shift demands a fresh approach to deal structuring. Shorter terms reduce income certainty, heighten the risk of vacant properties and increase re-letting costs. However, this shift is also creating new opportunities: quicker turnover, stronger cash flow and the ability to repurpose or redevelop space more frequently. Flexible, multi-use buildings also align well with modern ESG expectations and occupier preferences. 

Developers who build flexibility into their leasing strategies whether through adaptable terms, turnover-based rents or collaborative landlord-tenant arrangements may be better positioned to attract high-quality occupiers. Careful negotiation, innovative lease structuring and proactive management will be key to balancing flexibility with security in the years ahead.

Legal Implications for investors and developers

Shorter occupational terms can influence valuation, lending and exit strategies, particularly where funders prioritise predictability of income. Due diligence now focuses more closely on covenant strength, enforceability of break rights and the mechanisms for rent review and renewal provisions. Higher lease turnover also increases day-to-day legal activity and requires closer co-ordination between asset managers and their legal advisers.

Developers must also navigate the evolving market. Many occupiers now view adaptability as a key factor of modern leasing, particularly in sectors such as flexible offices and logistics. Incorporating this adaptability at the design and planning stages can add long-term value, but it also requires legal frameworks that accommodate future change. For example, leases must anticipate potential reconfiguration, shared amenities and evolving ESG standards, all of which can influence how a building is operated, let and maintained over time.

Balancing flexibility and risk in drafting

The drafting of shorter leases requires a careful balance between accommodating occupier flexibility and preserving the investor’s commercial objectives. Some key considerations are listed below: 

• Break options must be clear, workable and proportionate. Poorly drafted conditions may risk uncertainty and lead to disputes;
• Rent review mechanisms may need to move away from traditional five-yearly reviews, with many opting for indexation to maintain consistency in shorter terms;
• Service charge and repair obligations should be drafted to reflect the reduced term to avoid leaving landlords with disproportionate costs or dilapidations; and
• Future-proofing is essential. Leases should include workable provisions on use, assignment and alterations so the asset can adapt to market and regulatory change without repeated renegotiation.

In an environment where certainty is no longer measured solely by lease length, the emphasis moves toward the quality of the landlord-tenant relationship and the flexibility of the legal documentation governing this.

Looking ahead: a more agile investment model

For investors and developers, success in this evolving landscape will depend on a willingness to embrace a more agile investment model, supported by legal structures that enable rather than restrict change.

The move toward shorter leases reflects a broader shift in how value is measured. While term length and covenant strength remain important, investors are also assessing adaptability, occupier engagement and ESG performance. Buildings that can shift use, accommodate multiple occupiers or respond quickly to market demand are increasingly attractive and resilient.

Conclusion

Ultimately, the move toward shorter leases is not a sign of market weakness but of transformation. This new approach challenges established assumptions about security and value of leases, whilst paving the way for more dynamic, resilient investment strategies. For those prepared to adapt, the opportunity lies in creating portfolios that thrive not on rigidity, but on the ability to evolve.