NNN, Gross, Full Service? The Tenants Guide To Commercial Rents

If you’re in the market to lease office, R&D, or industrial space… then naturally, one of the first questions that comes to mind is – what’s it going to cost, how much is the rent?

As you explore options, you’ll likely come across the “quoted” or “ask” rate – which will look something like this:

• $2.75/SF Full Service
• $1.50/SF NNN
• $1.25 Gross

BE FORWARNED: Not All Rents Are Created Equal

These only reflect the Base Rent. Comparing the above is like comparing apples and oranges… each quoted rate only answers a portion of your question.

To the untrained eye there are hidden costs…

Here’s What You Need To Know Before You Lease Space

Commercial rent structures aren’t arbitrary – they’re determined by the type of building and how the landlord manages expenses and risk. While one type is not necessarily better than the other, they are different…

Understanding the differences will help you make informed decisions because you’ll know what costs are covered, who’s responsible for what, and how predictable your monthly expenses will be.

There are 3 main lease types you’ll encounter with commercial real estate – each one impacts the rent structure differently:

1. Triple Net (NNN)
2. Gross
3. Full Service

Below, you’ll find an overview comparing the 3 main lease types, then we drill down on each one in more detail.

3 Main Lease Types Comparison Overview

* – Expenses over and above the base year expense get billed as an additional expense back to tenants (based on their proportionate share).

TBD – because each property is different, verification is required to determine if this item is applicable and how costs are handled.

1) Triple Net (NNN)

Think of NNN as “a la carte” where each expense is itemized and passed through to the tenant. Tenants generally pay a lower base rent but are responsible for reimbursing the landlord for their proportionate share of the NNN expenses.

In case you’re wondering…

NNN expenses are made up of 3 components – 1) property taxes, 2) insurance, and 3) common area maintenance (CAM).

Landlords use NNN leases to shift variable operating costs to the tenant. This gives landlords predictable income and removes the risk of rising expenses cutting into their profits.

NNN leases are most common in industrial properties, R&D/flex spaces, and single-tenant buildings.

* – Expenses over and above the base year expense get billed as an additional expense back to tenants (based on their proportionate share).

TBD – because each property is different, verification is required to determine if this item is applicable and how costs are handled.

Base Rent – For a NNN lease this is comprised of the Base Rent only. All other expenses are added on top of the Base Rent.

As you explore options this is the “quoted” or “ask” rate you’ll likely come across.

NNN Expenses – Represent the proportionate share of property expenses the tenant is responsible for. NNN expenses are made up of the following:

• Property Taxes
• Insurance
• Common Area Maintenance (CAM) – To understand what you’re paying for and accurately compare properties it’s recommended to request an itemized breakdown of these expenses because the items that make up the CAM are different for every property.

Pro Tip – Always ask about the NNN expenses. Then, once provided, dig in deeper…

Make sure you’re getting the latest information. Clarify if you’re being provided the “actual” – meaning the final breakdown from the previous year; or the “estimated” – meaning the amount estimated for the current year.

It’s also recommended to request historical NNN’s to get an idea of how much they fluctuate year-over-year to help gauge future expectations and how efficiently the property is being managed.

Utilities – Under a NNN lease the tenant is responsible for separately contracting and paying for utilities servicing the space. Common utilities to plan for include:

• Gas
• Electricity
• Water
• Trash
• Phone/Internet

Utilities are generally separately metered, so you contract and pay for your actual usage (although it’s recommended you verify this).

Janitorial – Under a NNN lease the tenant is responsible for separately contracting and paying for janitorial services within the space.

* – Expenses over and above the base year expense get billed as an additional expense back to tenants (based on their proportionate share).

TBD – because each property is different, verification is required to determine if this item is applicable and how costs are handled.

Base Rent – For a Gross lease this is comprised of Base Rent + Property Taxes* + Insurance*.

As you explore options this is the “quoted” or “ask” rate you’ll likely come across.

Property Taxes – Included in the Base Rent*.

Insurance – Included in the Base Rent*.

Common Area Maintenance (CAM) – TBD because each property is different, verification is required to determine if this item is applicable and how costs are handled.

If applicable, to understand what you’re paying for and accurately compare properties it’s recommended to request an itemized breakdown of these expenses because the items that make up the CAM are different for every property.

Utilities – TBD because each property is different, verification is required to determine how costs are handled.

Utilities may or may not be separately metered, so you’ll want to verify this to make sure you’re billed accurately, fairly, and according to your actual usage. Common utilities to plan for include:

• Gas
• Electricity
• Water
• Trash
• Phone/Internet

Janitorial – Under a Gross lease the tenant is usually responsible for separately contracting and paying for janitorial services within the space.

* – Expenses over and above the base year expense get billed as an additional expense back to tenants (based on their proportionate share).

TBD – because each property is different, verification is required to determine if this item is applicable and how costs are handled.

Base Rent – For a Full Service lease this is comprised of Base Rent + Property Taxes* + Insurance* + CAM* + TBD Items.

As you explore options this is the “quoted” or “ask” rate you’ll likely come across.

Property Taxes – Included in the Base Rent*.

Insurance – Included in the Base Rent*.

Common Area Maintenance (CAM) – Included in the Base Rent*.

Utilities – Included in the Base Rent (gas, electricity, water, trash).

However, tenant is responsible for separately contracting and paying for phone/internet services within the space.

Janitorial – TBD because each property is different, verification is required to determine who is responsible for the service contract and how costs are handled.

Dedicated To Helping You Get A Great Deal + Maximize ROI On Your Next Lease,