A commercial real estate lease is a lease contract between the owner (landlord) and occupant (tenant) of commercial real estate in which the landlord grants to the tenant the right to occupy and use of all or part of the property for commercial purposes under specified terms and conditions. A CRE lease requires negotiation of the length of tenancy and any renewal option, rental, rent increases and deposits, property maintenance, insurance and taxes, utilities and cleaning as well as leasehold improvement.
Commercial space (units) for lease is also defined and ranked by the quality of the leased property as:
- Class A – The highest quality of commercial space available for lease;
- Class B – The second highest quality of space available in the commercial real estate lease market; or
- Class C – Suboptimal space for rent, usually because the property is relatively dated or located in less desirable areas.
| Lease Commissions in the US Real Estate Market 1Q 2015 | ||||||
|---|---|---|---|---|---|---|
| New Leases | Renewal Leases | |||||
| Market | Low | High | Average | Low | High | Average |
| Power Center | 3.00% | 6.00% | 5.20% | 2.50% | 5.00% | 3.19% |
| Strip Shopping Center | 2.00% | 8.00% | 5.41% | 0.00% | 5.00% | 2.78% |
| CBD Office | 3.00% | 8.00% | 5.90% | 2.00% | 6.00% | 3.85% |
| Suburban Office | 3.00% | 8.00% | 5.89% | 1.50% | 7.00% | 3.54% |
| Net Lease | 3.00% | 7.00% | 4.75% | 2.00% | 6.00% | 3.67% |
| Source: PWC | ||||||
For commercial real estate leasing, the issues requiring negotiation depend on the type of the commercial property (e.g., office building or warehouse) and its quality ranking (e.g., class A, class B or class C).