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Industrial Real Estate Lease Term & How It May Vary From Residential Properties

Industrial Real Estate Lease Term & How It May Vary From Residential Properties

As we know, it is quite common to rent a residential property for 1 or 2 years. Sometimes, it may even be as short as 6 months if the residential tenant happens to be on contract or project basis. Short term leases can sometimes also mean higher rental as the landlord may need to source for a new tenant after the tenancy expires and this could mean opportunity cost for the landlord.

However, in the case of industrial or commercial properties in Singapore, it is not uncommon to see companies or corporations going for longer leases.

Examples of Reasons Why Companies Prefer Longer Leases

The reasons for the longer term leases could be because of many reasons such as fitting out, informing their business partners, notifying suppliers of the change of business address, updating business directories, re-printing business cards, updating online directories, reflecting the new address on company website, redoing marketing collaterals, migrating of servers etc

Frequent change in business address can also mean disruption for employees who may find the next office or warehouse location inconvenient when commuting from their home to work.

Longer Lease Term Usually Preferred

In terms of industrial or commercial properties, companies usually prefer to sign around 3 year leases and would also have budgeted or plan ahead for the next three years. This can also help to avoid the hassle of relocation which may also be disruptive to day-to-day business operations.

No Diplomatic Clause

Unlike residential properties which may sometimes include a diplomatic clause where applicable, there is no diplomatic clause for industrial and commercial properties.

How Long Would Be Ideal

You may also ask, so what should be the ideal lease term you should go for if your company is considering to rent a warehouse or factory? Or if you are a landlord or investor, how long should you allow your prospective tenant to rent the industrial unit?

This can be subjective as each company would have done their own budgeting or finance planning ahead and in advance. There is no hard and fast rule for this. However, we often see companies going for long term leases such as 3 years with the option to renew.