Demystifying commercial real estate: A beginner’s guide

News & Insights
News & Insights
Demystifying commercial real estate: A beginner’s guide

Demystifying commercial real estate: A beginner’s guide

If you find yourself navigating the realm of buying, leasing, or selling commercial properties, you’ll likely engage with a spectrum of seasoned professionals—real estate agents, property managers, lenders, solicitors and more. It’s crucial to equip yourself with knowledge to navigate this complex landscape.

Every industry has its own set of jargon, and commercial real estate is no exception. In this guide, we present an alphabetical compilation of common commercial property terms, demystifying the language and providing clarity for those entering this dynamic market.

Active listing: A property available for sale or lease.

Adaptive reuse: Repurposing an old site or building for a different use than originally intended.

Amenities: Facilities within a commercial property for personal comfort or enjoyment, such as toilets, kitchens or parking.

Anchor tenant: The primary tenant in a leased commercial property, attracting other tenants.

Asking rent: Advertised rent per square metre per annum, which may differ from the agreed-upon lease rent.

Assignment of lease: Transfer of a commercial property lease from one tenant to another.

Base year: Estimation of a tenant’s share of a building’s operating expenses during the first calendar year of the lease.

Buyer’s market: A market with more sellers than buyers, potentially lowering property prices and lease charges.

Capital gains: Profit from the sale of a commercial property or investment.

Contiguous space: Two adjacent commercial spaces on the same or different floors.

Conveyancing: The legal process of transferring property ownership between a buyer and a seller.

Restrictive Covenant: A contractual condition restricting property or land use.

Counteroffer: A new offer made in response to an unacceptable offer on a property.

Due diligence: Research and analysis of a property before signing a purchase or lease contract.

Effective rent: The rental rate of a lease, including rent-free periods or concessions (market incentives).

Equilibrium point: When the demand and supply for commercial property are equal.

Fit-out contribution: A payment or reimbursement from the landlord to the tenant for space improvements.

Fixtures: Permanent parts of a property included in a sale, such as light fittings and carpet.

Floor space: Measurement in square metres of a building’s horizontal floor space.

Floor space ratio (FSR): The ratio of a building’s floor area to its site area, guiding development.

Gross lease: Tenant pays a base rent without contributing to outgoings or other property expenses.

Lease: A document outlining terms and conditions for a tenant to occupy a commercial property.

Leasehold: A lease with the landlord for several years.

Lessee: Tenant of a leased commercial property.

Lessor: Owner of a leased commercial property.

Letter of intent: A non-binding letter expressing genuine interest in buying or leasing a property.

NABERS rating: A six-star rating measuring the environmental performance of a property.

Negative gearing: Investing borrowed money to incur a tax-deductible loss.

Net lease: Tenant pays a base rent plus property outgoings.

Net lettable area (NLA): Sum of the floor space a tenant can occupy, excluding common areas.

Outgoings: Expenses associated with running and maintaining a building.

Property management: Service provided for a commercial property owner, including financial management, tenant management and maintenance.

Public liability insurance: Coverage against injury or death on commercial property premises.

REIT: Real Estate Investment Trust, owning, operating, or financing income-producing real estate.

Return on investment (ROI): Measure of profit or loss relative to the money invested.

Sale-leaseback: Transaction where a property owner sells and then leases back from the buyer.

Settlement: The date property ownership transfers from seller to buyer.

Stamp duty: Government tax on property sales paid by the buyer.

Sublease: Agreement where a tenant leases part or all of their space to a third party.

Title: Legal ownership of a property.

Trust account: Bank account set up by one person on behalf of another, e.g., an agent collecting a buyer’s deposit.

Unencumbered property: Property with no existing mortgages or leases.

Vacancy rate: Percentage of vacant or empty commercial rental properties.

Valuation: Estimate of a property’s market value.

Vendor: Owner selling or leasing a property.

Yield: Rent generated by a commercial property as a percentage of its market value.

Zoning: Local council regulations controlling land use in a specific area.