UOL bulk leases: a good or bad strategy?

A RECENT long-lease agreement between UOL Group and the Central Provident Fund (CPF) Board has raised an interesting question: Is it better, from a shareholder point of view, for an office landlord to lease out a large chunk of office space on a long lease to one single tenant or to have the space divided and leased to a number of smaller tenants on shorter leases and thus achieving higher per-square-foot (psf) rents?

The lease agreement between UOL Group and the CPF Board involves the renting of nearly 210,000 sq ft that will be vacated at Novena Square's two office towers by Procter & Gamble (P&G) when its leases expire in two tranches: in mid-2015 and 2016.

At first glance, having smaller tenants is the better option, as it appears to maximise revenues. But on closer examination, …