4 ms·

Why will leases be terminating in Q2 2021 in particular?

sebmellen 6y ago
This is mainly a concern for one year leases that were renewed this March/April/May, which won't be renewed in 2021. There are many companies which budgeted for a few weeks or months of work from home, now they're transitioning permanently and the office space they were using is no longer needed.
- gruez 6y ago
  >This is mainly a concern for one year leases that were renewed this March/April/May, which won't be renewed in 2021 Do leases tend to get renewed in Q2?
  - sebmellen 6y ago
    It depends on when the lease was signed. AFAIK there's a pretty even distribution between quarters. Here's an article from this year (2020) about notable leases signed in Q2: https://www.bizjournals.com/sanjose/news/2020/07/10/six-notable-cre-leases-signed-in-silicon-valley-q2.html https://www.bizjournals.com/sanjose/news/2020/07/10/six-nota....
  - freehunter 6y ago
    If they signed a 12 month lease in Q2, then yes.
    - bobbyi_settv 6y ago
      A 12 month lease for commercial real estate in SF?
      - dguaraglia 6y ago
        That's not uncommon. Our office in North Beach was a 12-month deal. In fact, contracts tend to be longer (24 months or so).
        ComputerGuru 6y ago
        I think that was the point. 12 months is atypically short.
        rightbyte 6y ago
        Of leases 24 months long the average lease should be 12 months in right now (given steady state). I.e half of them expire in a year. Lets say that they realised this summer that things will be different then the effect should gradually start to show almost immediately.
        sokoloff 6y ago
        I think that was GP’s point. We have a few one-year leases on small spaces, but most of ours are 5 year leases, usually with renewal options, sometimes with break options (for $$) at 3 years.
      - freehunter 6y ago
        Or anything that‘s a multiple of 12. If the lease was signed in Q2 of any year, it will be up for renewal in Q2.
    - astura 6y ago
      Around here commercial leases on office buildings are typically seven years.
  - enigmo 6y ago
    the scope of the pandemic wasn't yet clear in Q1
    - nostrademons 6y ago
      But the decision to terminate happens when the lease expires at any point after the pandemic happened, not exactly as the pandemic started. If you signed a 1-year lease in 2019Q3 and then realized that you're going to permanent WFH in 2020Q2, you let the lease expire in 2020Q3 and count yourself lucky. So the impact of this should be spread across the year following lockdowns/wfh, not all concentrated in 2021Q2.
- antognini 6y ago
  Shouldn't we already be seeing this from leases that were signed in Q3 2019?
  - sebmellen 6y ago
    Yes, and we are seeing it, but there are many leases continuing until Q2 2021 (and beyond). The past few months have seen a slow and gradual decline, but a fair number of leases are still being paid and are locked in. Q2 2021 is when that decline accelerates and drops off a cliff.
- cure 6y ago
  One year leases on commercial office real estate?!? That's unheard of around here (Boston). You'll be lucky if you find a commercial landlord who will rent to you for 5 years instead of the more usual 7, 10 or 20. Subleases are a different story, of course.
  - sebmellen 6y ago
    Sorry for my lack of semantic nuance. Most of the leasers rely on payments from their subletters to pay their leases, so the effects will translate over in either case, just with more "buffer time". There are also a fair amount of 1-year direct commercial leases, depending on the area.
CamperBob2 6y ago
Because that's when businesses stopped signing new ones, I imagine.
faeyanpiraat 6y ago
Edit: Deleted: realized I replied to old comment

This is mainly a concern for one year leases that were renewed this March/April/May, which won't be renewed in 2021. There are many companies which budgeted for a few weeks or months of work from home, now they're transitioning permanently and the office space they were using is no longer needed.

gruez 6y ago
>This is mainly a concern for one year leases that were renewed this March/April/May, which won't be renewed in 2021 Do leases tend to get renewed in Q2?
- sebmellen 6y ago
  It depends on when the lease was signed. AFAIK there's a pretty even distribution between quarters. Here's an article from this year (2020) about notable leases signed in Q2: https://www.bizjournals.com/sanjose/news/2020/07/10/six-notable-cre-leases-signed-in-silicon-valley-q2.html https://www.bizjournals.com/sanjose/news/2020/07/10/six-nota....
- freehunter 6y ago
  If they signed a 12 month lease in Q2, then yes.
  - bobbyi_settv 6y ago
    A 12 month lease for commercial real estate in SF?
    - dguaraglia 6y ago
      That's not uncommon. Our office in North Beach was a 12-month deal. In fact, contracts tend to be longer (24 months or so).
      - ComputerGuru 6y ago
        I think that was the point. 12 months is atypically short.
        rightbyte 6y ago
        Of leases 24 months long the average lease should be 12 months in right now (given steady state). I.e half of them expire in a year. Lets say that they realised this summer that things will be different then the effect should gradually start to show almost immediately.
      - sokoloff 6y ago
        I think that was GP’s point. We have a few one-year leases on small spaces, but most of ours are 5 year leases, usually with renewal options, sometimes with break options (for $$) at 3 years.
    - freehunter 6y ago
      Or anything that‘s a multiple of 12. If the lease was signed in Q2 of any year, it will be up for renewal in Q2.
  - astura 6y ago
    Around here commercial leases on office buildings are typically seven years.
- enigmo 6y ago
  the scope of the pandemic wasn't yet clear in Q1
  - nostrademons 6y ago
    But the decision to terminate happens when the lease expires at any point after the pandemic happened, not exactly as the pandemic started. If you signed a 1-year lease in 2019Q3 and then realized that you're going to permanent WFH in 2020Q2, you let the lease expire in 2020Q3 and count yourself lucky. So the impact of this should be spread across the year following lockdowns/wfh, not all concentrated in 2021Q2.
antognini 6y ago
Shouldn't we already be seeing this from leases that were signed in Q3 2019?
- sebmellen 6y ago
  Yes, and we are seeing it, but there are many leases continuing until Q2 2021 (and beyond). The past few months have seen a slow and gradual decline, but a fair number of leases are still being paid and are locked in. Q2 2021 is when that decline accelerates and drops off a cliff.
cure 6y ago
One year leases on commercial office real estate?!? That's unheard of around here (Boston). You'll be lucky if you find a commercial landlord who will rent to you for 5 years instead of the more usual 7, 10 or 20. Subleases are a different story, of course.
- sebmellen 6y ago
  Sorry for my lack of semantic nuance. Most of the leasers rely on payments from their subletters to pay their leases, so the effects will translate over in either case, just with more "buffer time". There are also a fair amount of 1-year direct commercial leases, depending on the area.

CamperBob2 6y ago

Because that's when businesses stopped signing new ones, I imagine.

faeyanpiraat 6y ago

Edit: Deleted: realized I replied to old comment