Long-term leases suit landlords who value financial certainty and tenants with high fit-out costs, while short-term leases suit tenants who want flexibility and landlords who need to reposition. The average length of office leases in New Zealand in 2024 was 35 months, a 29% increase from the previous year.
Whenever you’ve found yourself at the same table as either a tenant or a landlord when talking about the terms of the lease, you’ll have seen how soon the discussion can become complicated, since one side wants to keep its options open and the other wants certainty.
This is the point: there is no single universally “correct” answer, but there does exist the correct answer for your particular property, your type of tenants, and in light of where the current market stands. Indeed, the New Zealand commercial market is currently telling an interesting story.
Landlords are now entering into leases that are considerably longer than in the past. This point has been made in Re-Leased’s State of Commercial Real Estate Leasing report, which states that the average length of office leases rose from 27 months in early 2023 to 35 months in early 2024; that therefore represents a 29% increase in just one year. The number of leases lasting between five and ten years has increased by 56%, while those lasting over ten years have almost tripled.
That is a major change. This move is part of the wider industry trend toward greater certainty, as both tenants and landlords work to reduce the risks they face amid rising costs. However, the situation has altered yet again by the time 2026 arrives.
According to the more recent Market Lens report by Re-Leased, long-term conviction remains strong, but short-term confidence has declined, and the focus has shifted from interest rate risk to tenant risk. In other words, landlords are now asking, “Will my tenant still be trading in three years?”
What a Short-Term Lease Actually Gives You
Short-term leases (usually less than 2 or 3 years) are poorly rated in commercial circles, but that doesn’t mean they are automatically the less desirable choice; they are simply a different option.
For landlords, short-term leases offer:
- The ability to reset rent to market faster if you’re in a rising rent environment
- Flexibility to redevelop, sell, or repurpose the asset without being locked in
- A lower-commitment way to test an unproven tenant before offering a longer term
For tenants, short-term leases offer:
- Room to grow, shrink or relocate without breaking a long commitment
- Lower exposure if the business model, the location, or the local market shifts
- A useful option for pop-ups, first locations, seasonal retail, or businesses still finding product-market fit
The downside is clear: both sides end up with less certainty. Landlords face more frequent vacancies and higher leasing expenses, while tenants have weaker negotiating power over fit-out contributions and may be forced to renegotiate rent (and moving costs) earlier than they’d prefer.
What a Long-Term Lease Actually Gives You
In New Zealand’s current market, long-term leases (usually lasting 5 or more years and often including the right to renew) have become the preferred option, and the data supports this.
For landlords, long-term leases offer:
- Predictable, bankable income, which matters a lot when lenders are assessing your portfolio
- A stronger position when it comes time to sell, since buyers and valuers pay a premium for a long WALE (Weighted Average Lease Expiry)
- Lower vacancy risk and lower ongoing leasing and marketing costs
For tenants, long-term leases offer:
- Justification for investing in a proper fit-out, since they’ve got time to earn that investment back
- Rent certainty for budgeting and business planning
- Stronger footing to build local reputation, signage recognition and customer loyalty at one address
That is precisely the reason why tenants who require a lot of fit-out work, such as those in the hospitality, medical, and specialist retail sectors, advocate for longer lease terms, and why landlords have adopted this approach. When a tenant invests real money in setting up a commercial kitchen or a treatment room, a 12-month lease with no option to renew makes no commercial sense for either the tenant or the landlord.
The Real Factor Most People Skip: Sector & Asset Type
This is where much of the “short versus long” advice fails. The right answer varies considerably depending on the asset you are leasing.
- The office situation is such that rent increases in New Zealand are approximately 3.5 per cent, with landlords covering the costs of fit-outs, and there being a real ‘flight to quality’ occurring as the supply of A-grade properties becomes tighter in the major centres, so that longer leases with structured rent reviews are now the usual arrangement for high-quality office space.
- In the retail sector, tenants who rely on foot traffic usually request shorter tenancy periods to remain flexible, but landlords in good retail locations can and should ask for longer agreements with reasonable rent review provisions.
- Tenants in the industrial sector with heavy plant, racking, or special fit-out requirements generally prefer longer tenancies, and landlords gain the resulting income stability.
If you are a landlord with a varied portfolio, don’t adopt a general lease policy, since what works for your industrial unit might be the wrong approach for your CBD retail frontage.
The Middle Ground Most Landlords Miss
You needn’t choose one side or the other since some of the most commercially viable leases in the Bay of Plenty include features of both.
- A shorter initial term (say, 3 years) with one or two rights of renewal, giving the tenant a path to long-term security without locking the landlord in if the relationship doesn’t work out
- Market rent reviews built in at renewal points, so a longer overall relationship doesn’t mean the landlord is stuck at a below-market rate for a decade
- Break clauses at agreed milestones, which give tenants an exit option in exchange for a slightly higher rent or a shorter notice period elsewhere in the lease
It is only half the story whether the term is long or short that makes a good lease and a property manager who takes the time to read the small print worth their while. Just as important as the fact that it states “3 years” or “10 years” on the first page is what is included in that term: the rent review procedure, the right to renew, the right to recover outgoings, and the make-good clauses.
A Quick Framework for Deciding
Before your next lease negotiation, run through these questions:
- How much is the tenant investing in fit-out, and how long will it take to pay that back? Consider the amount the tenant is putting into the fit-out and the time it will take to recover that money; if it exceeds two years, a short lease is not suitable.
- What is the present state of rents in this asset class? If the market is rising, a longer lease with structured reviews will offer you protection; if the market is softening, greater flexibility may be more suitable.
- How much of your income is at risk if this property remains vacant for three to six months? In that case, certainty becomes more important than the potential gain.
- Are you going to decide to sell, redevelop, or refinance in the coming years? The longer your WALE is, the better your position will be with buyers and lenders.
- Is the tenant a seasoned, proven operator or someone with no track record? The length of the term is a factor you can use to manage risk.
FAQs: Short-Term vs Long-Term Commercial Leases in NZ
- How is a ‘short-term‘ lease distinguished from a ‘long-term‘ lease in New Zealand
There is no legal definition to serve as a cutoff, but in reality most commercial property professionals in New Zealand regard leases lasting less than two or three years as being short-term and those of five years or over (typically including the right to renew) as long-term; leases falling between these periods are generally evaluated on a case-by-case basis. - Do long-term leases really lead to better rental returns for landlords?
Not necessarily. A long lease fixes the initial rent at the rate agreed upon and allows for increases only through the rent review mechanism you have arranged (such as fixed increases, CPI-linked adjustments, or a market review). A long lease with a poorly designed rent review clause can end up costing the landlord more over time than a shorter lease whose terms are renegotiated at today’s market rates. - Why are a large number of New Zealand landlords currently advocating for longer leases?
Mostly to reduce vacancy risk and improve their standing with lenders and potential buyers. Since a longer weighted average lease expiry (WALE) is one of the main factors that adds value in a commercial property valuation, it also enables landlords to obtain more predictable income in a market where the emphasis has moved from interest rate risk to tenant risk. - Can a short-term lease still include a rent review?
Yes, a short-term lease can have a rent review, and it should. Even if the lease is for 12 or 24 months, it can and usually should include a market or fixed rent review at the time of renewal, together with clear provisions for recovering outgoings. A short-term lease doesn’t mean it has to be poorly documented. - When negotiating fit-out contributions, what should I focus on?
Match the lease term to the fit-out payback period. In most cases, if a landlord is paying for fit-out costs, that contribution should be linked to a longer initial term or a make-good clause, so that the landlord is not financing improvements for a tenant who vacates the premises before the investment has been recovered.
The Bottom Line
The issue isn’t really about short-term or long-term. The real question is: what does this particular asset, this particular tenant, and this particular point in the market actually require? If you get that assessment wrong, then you’ll either be tied into a lease that is below market rate for a period of ten years, or you’ll have to keep paying the costs associated with vacancy every twelve months in order to secure a tenant who never intended to stay.
A proactive commercial property manager ends up rewarding themselves many times over in situations like this. It’s not enough merely to sign a lease; it’s necessary to draw up the correct lease, containing the appropriate term, the proper reviews, and the suitable protections, so that your investment performs as it should.
Not sure whether your current leases (or your next one) are working as hard as they should be for you?
Get in touch with the team at Commercial Property Partners for a straightforward, no-pressure look at your lease structure and where there’s room to improve it.
