Like many industries, commercial real estate has a language all its own. Use the list below to help understand what many of the industry terms mean. As always, consult with your real estate professional if you have any questions and to see if your area may use any regional variations.
Add On Factor:
(Also referred to as the Common Area Factor) A multiplier that converts the usable square footage of space within a tenant's demised premises to the rentable square footage for which the landlord will actually charge rent. Allocates the common areas of the property, such as bathrooms, hallways, and lobbies to the demised premises of all the respective tenants on a pro-rata basis.
Total space available for occupancy within ninety days through the landlord, or after Certificate of Occupancy has been received on new construction.
Space available through a lessee to a third party for occupancy within ninety days.
A term used to indicate that the scope of a tenant improvement allowance is to apply to everything that is included below the fully-constructed ceiling, such as walls, carpet, electrical outlets, etc. May sometimes include ceiling elements that are stacked on the floor.
A developable parcel that an owner will improve to suit the needs of a particular tenant. Construction does not begin until a tenant has committed to the property.
Central Business District, generally the downtown area of a major city.
Critical statistic for some manufacturing and distribution companies. Distance between floor and bottom of building's bar joist; the minimum ceiling height.
Typical truck loading door designed to accommodate tractor trailers. A dock high door is elevated 4' above the truck court surface.
First Offer Right:
Right given to a tenant in which the landlord will first offer an available space to tenant before taking such space to the market.
Heating, Ventilation, Air Conditioning. Refers to the cooling and heating systems of both the building and the tenant's premises.
Letter of Credit:
(Also known as a LC) A pledge by a bank, or other financial entity, made on behalf of a tenant for funds to be demanded by a landlord in the event of a default pursuant to the specific terms of a lease agreement. Many landlords require a "Letter of Credit" for companies who lack substantial financial history or assets.
Must Take Space:
(Also known as Hold Take Space) Specifically designated square footage that a tenant must take as part of the previously negotiated lease agreement. Typically, the "Must Take Space" expires at the same time as the primary lease, and has a designated lease rate and tenant improvement finish/retrofit allowance. It is considered a strategy used to provide expansion space for a tenant.
The net change in vacant space during a given period of time.
Net Rentable Area:
(Also known as NRA) The area (square footage) for which rent is charged under a lease, including a portion of the common area used by the public and for maintenance within the building.
Net Useable Area:
(Also known as NUA) The area (square footage) for which the tenant has exclusive rights, i.e. the area within the tenant's demised premises.
Total inventory available including both direct and sublease space.
Per square foot.
Per square foot per month.
Per square foot per year.
A ratio of allocated parking spaces per square foot leased. For example, 1:300, one parking space for every 300 square feet of leased space. Alternately, can be quoted as number of spaces per 1,000 square feet leased. (i.e. 3.3:1000)
The area located between the ceiling grid and the bottom of the upstairs floor. HVAC ductwork, fire sprinklers, electrical conduit, and network cabling is typically located within this area.
The right of the tenant to renew or extend the term of a lease for a stated period of time at a rent which may be prenegotiated or will be determined through negotiations at the time of renewal.
Right of First Refusal:
(Also known as FRR or RFR) Gives the tenant a first chance to lease a specific space if the landlord has another prospect ready and willing to lease such space. The landlord must have a legitimate offer which the tenant can refuse or accept.
Square foot or square feet.
Construction that will commence without 100% prior commitment from a tenant.
(Also known as TI) Improvements necessary to meet the needs of the tenant; to construct the tenant's space, i.e., walls, doors, and ceilings.
The specified period of time in a lease agreement whereby the landlord grants a right of possession and use for a property or space to the tenant. The length of the lease.
The sum of available direct and available sublease space.
A construction project whereby the landlord is responsible for the total completion and cost of improvements made to a property pursuant to the specific requirements and specifications of the tenant. The result being, all the tenant has to do is "Turn the Key" on the door of their new space.
The part of the lease which deals with tenant improvements. Items which should be addressed include the amount of money the landlord will contribute to the construction, the condition of the premises prior to construction, how any overages in construction cost will be paid, and how contractors will be selected.
Class "A" Office:
Building(s) location considered premier with high market perception standards. Typically higher rent with excellent building finishes, multiple building amenities and high efficiencies.
Class "B" Office:
Building(s) location considered excellent with medium market perception standards. Typically lower rent than Class "A" with good building finishes, some building amenities and medium efficiencies.
Class "C" Office:
Building(s) location considered poor with low market perception standards. Typically below market rent with fair building finishes, few building amenities and low efficiencies.
Single or multi-level, usually tilt wall construction, value office building(s) providing high parking ratios.
Single or multi-level, usually tilt wall construction, value office building(s) with dock-high and/or grade-level doors and high parking ratios.
Single story, usually tilt wall construction, with a minimum 20' clear height with dock-high doors and low parking ratios.
Single or multi-level, usually tilt wall construction, with grade-level doors and high parking ratios.
Base Year Expense Stop:
The annualized amount per rentable square foot that a landlord pays toward the operating expenses of a building. Amounts exceeding the expense stop are billed to the tenant. Expense stops are often set following the first year of the lease (the "base Year"). In those events, the expense stop is referred to as a "Base Year Expense Stop".
"Common Area Maintenance" charge. Generally used in industrial gross and NNN leases where the tenant pays a share of the costs associated with the maintenance of the common areas.
Fair Market Rent:
Rent which would normally be agreed upon by a landlord and tenant consummating an arm's length transaction for a property taking into consideration the property characteristics and local market conditions.
Full Service Rent:
The rental amount that includes all other costs, including operating expenses. This does not mean that no other expenses can be passed through in future years. Usually quoted on a per rentable square foot per year basis.
Rental type generally used in industrial product where the landlord's rental rate contains all costs associated with occupying the premises inclusive of taxes, insurance, and maintenance.
Net Lease/Triple Net Lease:
(Also referred to as NNN) A lease in which the tenant pays not only the base rent, but certain landlord costs such as operating expenses, property taxes, insurance premiums, and utilities.
The actual day to day costs of operating a property, such as taxes, utilities, cleaning, insurance, maintenance, etc.