Commercial Real Estate Definitions [GUIDE]

What Is Commercial Real Estate?

Commercial real estate is property used exclusively for business-related purposes . As such, it provides a workspace rather than a living space. A property that provides a living space would instead constitute residential real estate. Commercial real estate properties are most often leased out to conduct income-generating activities. This real estate category can include a single storefront, a giant shopping center or an office complex, for example
Did you pass our pop quiz? If not, or if you need to brush up on your terms, check out our commercial real estate definitions guide below.
  • Build-to-Suit: A property developed specifically for a certain tenant to occupy, with structural features, systems, or improvement work designed specifically for the needs of that tenant.
  • Cap Rate: Short for “capitalization rate,” the cap rate refers to the ratio of Net Operating Income (NOI) to property asset value. (e.g. A building with a NOI of $10,000 valued at a 5% Cap is worth: 10,000/0.5 = $200,000)
  • CBD: Central Business District
  • Delivery/Delivery Date: The time when a building completes construction and receives a certificate of occupancy.
  • Full-Service (FS) Rental Rate: A rental rate that includes all operating expenses such as utilities, electricity, janitorial services, taxes, and insurance.
  • Landlord: The owner of a property that is rented or leased to a tenant.
  • Landlord Representation: When a broker represents an owner/landlord in a typical lease transaction between an owner/landlord and a tenant.
  • LOI: Letter of Intent
  • Modified Gross (MG) Rental Rate: A rental rate that includes some of the operating expenses such as electricity, utilities, taxes, janitorial services, and insurance, but not all. Often the tenant will pay for janitorial and utilities while the other operating expenses will be included in the rental rate. It is important to clarify this with the owner or broker.
  • Preleased Space: Space that has been leased to a tenant and announced for future development but is not yet under construction.
  • PM: Property Manager. An individual who oversees all operational aspects of a building. Once a tenant signs a lease, it is the Property Manager who will assist the tenant with any questions, the build-out of the space, and any on-going issues once they have moved in.
  • PSF: Per Square Foot
  • Punch List: A final checklist of work that needs to be done to a property before the end of construction.
  • RFP: Request for Proposal
  • ROI: Return on Investment
  • RSF: Rentable Square Feet
  • Second Generation Space: Space that has had a prior tenant and therefore has modifications (such as walls, doors, ceiling treatments, etc.) that can often be used by a subsequent tenant.
  • Shell Space: A building space that has an unfinished interior and requires improvements.
  • Sublease/Sublet Space: Space that has been leased by a tenant and is being offered for lease back to the market by that tenant.
  • Tenant: A person, business, or group that pays rent to an owner or landlord for the right to use/occupy a property or space.
  • Tenant Representation: When a broker represents a tenant in a typical lease transaction between a tenant and an owner/landlord.
  • TI: Tenant Improvement
  • Triple-Net (NNN) Rental Rate: A rental rate that excludes all operating expenses such as electricity, utilities, taxes, janitorial services, and insurance. These expenses are expected to be paid directly by the tenant.
  • Vacancy Rate: The percentage of physically vacant space divided by the total amount of existing inventory.

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