Half of US commercial leases tracked by MSCI set to expire within five years

Posted On Friday, 29 September 2017 07:01 Published by
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As of Q2 2017, just over half of U.S. commercial leases tracked by MSCI were set to expire within five years.


The underlying contracts were concentrated heavily by property type (nearly 60% were tied to office assets) and geographically (more than half the value was weighted to California and the Northeast corridor from Boston to Washington, DC). The timing of expiration schedules and the level of open market rents matter, especially in these areas of concentrated investments.

In this report, we examine the structure of U.S. retail leases, which account for one-fifth of institutional investment in U.S. real estate. The analysis covers the four primary dimensions of income risk ‒ concentration, lease length, market conditions and tenant credit ‒ as captured by IRIS, MSCI's flagship product for property income risk.

The retail sector has faced headwinds in recent years with changes in consumer spending patterns and structural challenges, including the growth of online sales, obsolescent physical formats and an evolving landscape of major retailers. Despite the negative headlines, retail remains a sizable and important part of the investment landscape, accounting for nearly 22 cents of every dollar in contracted rent.

An analysis of MSCI's IRIS database shows that at a high level, U.S. retail leases appeared well positioned at mid-year, with potential gains on lease renewals averaging over 16%, a level far ahead of suburban offices or industrial properties. Nevertheless, at a more granular level it is clear that the risks are not evenly distributed across metropolitan markets and tenant types.

Source: MSCI

Last modified on Friday, 29 September 2017 07:01

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