Commercial Lease Expiration Wave 2025: What Landlords and Lenders Need to Know
Introduction: A Lease Expiration Surge That Could Reshape the Market
Leases on more than 265 million square feet of commercial space are set to expire in 2025 (Source: Trepp Report). This includes 100 million square feet of industrial space, 85.5 million square feet of office space, and 58.5 million square feet of retail space. For landlords, lenders, and investors, these lease expirations will likely impact cash flows and valuations differently depending on property type.
Industrial landlords may have an opportunity to reset below-market rents, while office landlords face greater uncertainty due to ongoing shifts in demand as the tension between work-from-home and return-to-office proponents resolves and to some extent the fate of retail hangs in the balance. How can property owners and financiers protect their interests while maximizing potential gains?
Let’s break down what this means for the commercial real estate (CRE) market, with a focus on industrial and office properties, which have the highest exposure.
What Are the Key Risks and Opportunities for Landlords?
When leases expire, landlords face a spectrum of possibilities:
Lease Renewals: Tenants may stay, but at what rate? Will rents go up or down? How much space will they renew?
Vacancy Risks: If a tenant leaves, how long will it take to fill the space?
Tenant Improvement Costs: Some spaces may require upgrades to attract new tenants.
Market Shifts: Demand fluctuations can affect rental pricing power.
How Will Industrial Lease Expirations Impact the Market?
Industrial real estate has been a strong performer, with demand outpacing supply for much of the last decade. However, a record number of new deliveries in 2024 has led to a more balanced market.
Key considerations for landlords:
Rent Growth Potential: Many leases set to expire in 2025 were signed years ago when rates were lower. This creates an opportunity to adjust rents to current market conditions.
Tenant Retention Strategies: Given the cooling demand, landlords may need to offer incentives or flexible terms to secure renewals.
Competition from New Supply: With more industrial properties entering the market, landlords must ensure their spaces remain competitive through maintenance, amenities, or lease structuring.
What About Office Lease Expirations?
The office market is in flux, with remote and hybrid work reshaping demand. The expiration of 85.5 million square feet of office leases in 2025 raises significant questions for landlords.
Key concerns:
Space Reductions: Many companies are downsizing their office space, even if they renew leases. For example, Fox Corporation renewed a major lease in Manhattan but reduced its footprint by 13%. Trepp data suggests that lease reductions could range from 10% to 50%, adding significant vacancy to the market.
Longer Vacancies: Unlike industrial properties, office spaces take longer to lease due to buildout requirements and tenant-specific needs.
Flexible Leasing Trends: More landlords are considering shorter-term leases or coworking-style agreements to attract tenants who are uncertain about long-term commitments.
The New York-Newark-Jersey City (15,668,924 Sq. Ft.) and Philadelphia-Camden-Wilmington (4,135,382 Sq. Ft.) are among the top ten Metropolitan Statistical Areas (MSAs) most exposed to office lease expiration (Source: Trepp Report).
Potential Lease Renewal Contractions
As noted above, not all lease renewals mean tenants will retain their existing footprint. Many companies are opting to downsize, leading to substantial lease contraction.
Landlords should prepare for potential reductions by:
Evaluating alternative tenant use cases for excess space.
Offering lease incentives to encourage tenants to maintain more space.
Developing flexible office layouts that cater to hybrid work models.
What Does This Mean for Lenders?
For lenders, these lease expirations create both risks and lending opportunities.
Loan Underwriting Adjustments: Lease expirations directly impact property valuations and loan underwriting. Lenders will need to assess renewal likelihood and potential cash flow changes.
Higher Vacancy Exposure: In areas with high office vacancies, lenders should stress-test their loan portfolios against potential revenue disruptions.
Financing Lease Turnover: Some landlords may need financing for tenant improvements or repositioning assets to attract new tenants.
How Can Landlords and Lenders Prepare for 2025?
With major lease expirations on the horizon, landlords and lenders should take proactive steps:
1. Assess Lease Expiration Exposure
Review upcoming expirations and categorize tenants by renewal probability.
Identify high-risk vacancies and create a strategy to attract new tenants.
2. Engage Tenants Early
Start renewal conversations well before lease expiration dates.
Understand tenant business needs and potential for renegotiation.
3. Adjust Lease Terms Strategically
For industrial spaces, focus on market-aligned rent adjustments.
For office spaces, consider offering flexibility, such as shorter lease terms or fit-out allowances.
4. Strengthen Property Positioning
Ensure competitive amenities and strong building maintenance.
If repositioning an asset (e.g., converting office to mixed-use), begin planning early.
5. Work With Legal Advisors to Structure Favorable Agreements
Review lease clauses related to renewal options, rent escalations, and termination rights.
Ensure financing agreements reflect current leasing realities.
Final Thoughts: Stay Ahead of the Market Shift
The 2025 lease expiration surge is more than just a routine market cycle—it’s a pivotal moment for commercial real estate. Whether you’re a landlord looking to retain tenants or a lender managing portfolio risk, proactive planning is key.
Need expert legal guidance to navigate lease review and renewal negotiations, financing, or property repositioning? Contact LareDiaz Law today and tap into 3 decades of commercial leasing and financing experience to get ahead of the curve.
Contact
Eric Diaz
Founder and Managing Partner
diaz@larediaz.law