How Commercial Leasing Works in Large Real Estate Projects

How Commercial Leasing Works in Large Real Estate Projects

If you’re curious about how shops, restaurants, and offices end up opening in commercial property, this blog explains everything you need to know about the commercial leasing process. It describes the manner in which developers offer commercial spaces for rent to brands or companies for their use. Here, you will find commercial leasing explained in simpler terms.

From LOI to Lock-In: Understanding the Commercial Leasing Process Step by Step

Breaking the commercial leasing process into smaller steps from LOI to Lock. It will allow those new to the commercial leasing process to gain insight into how the commercial leasing process works on a large real estate development. 

The commercial leasing process is initiated well before an establishment opens its doors to the public, as the developer plans and determines what types of businesses would fit into the project. 

1. Planning Project: The developer will first determine if the project will be focused on retail stores, office spaces, restaurants, or a combination of all.
2. Designers are finding qualified business tenants to fill different spaces based on the overall potential for foot traffic, as well as demand from customers.
3. The Development of an LOI: An LOI is the initial document that indicates to the potential tenant the terms of the rental, including rent amount and square footage of the rented area. 
4. Finalizing Process: Once both the developer and tenant have executed a legally binding lease.

Each of these steps will assist both parties by simplifying and providing more predictable results throughout the commercial leasing process.

What Does a Tenant Pay for in Retail Leasing Basics?

Many assume that the rent is all the costs they can expect; however, renting a retail location under a lease involves more to pay for than just base rent.

• Base rent is the monthly cost of the space being leased
• Maintenance charges are shared by all of the tenants and include cleaning, security, and other common area expenses.
• The lease term is typically between 6 and 15 years (sometimes longer) for large retailers.

Most large projects clearly define the above basics. Developers like SPJ Group understand how important it is to clearly state the terms of the lease so that there is no ambiguity regarding future costs.

Why Rent Increases Slightly Every Year

One common aspect of leasing a retail space is an incremental rent increase (also known as escalation).

1. Fixed annual increase, which typically ranges from 3-5?ch year, is a fixed amount.
2. They provide long-term value protection, allowing the developer to better control rising expenses.
3. They are established at the time of signing the lease agreement; tenants are informed of their anticipated rent for the next few years.

An escalation in rent is an expected part of the leasing process in commercial property, and most reputable companies disclose this information upfront.

2026 Shift: Why Flexible Leasing Is Becoming Popular

Flexibility in leasing has become very popular, especially among emerging brands, and flexibility is also an area that commercial real estate leasing has begun to improve.

1. Longer Lease Commitments for Start-ups
2. Easier Renewals Based on Performance
3. Increased Brand Variety for Customers

In larger projects, flexibility is successfully mixed with stability to help both tenants and landlords to offer appealing retail options for customers (a trend that has already been established in the United States by many large retail developers like SPJ Group).

Key Takeaways:

• The process of leasing commercial properties is how companies acquire large amounts of physical space.
• Each type of retail lease will have rent, upkeep, and duration of term.
• Planning and communicating will provide beginners with guidance on how to complete their commercial lease

FAQs

1. What is the 2% rule for real estate?
The 2% rule indicates that your monthly rent should be no less than 2% of your property's selling price to provide a strong cash flow.

2. What is the most common type of leasing in commercial property?
The Triple Net, or NNN lease, is the most widely used lease type, where the tenant pays rent in addition to maintenance, property taxes, and insurance. 

3. What is the biggest risk with commercial property? 
The largest risk in commercial real estate is vacancy risk due to the loss of income if a property has no tenants and has to continue paying for the fixed expenses, like maintenance and property taxes, etc. 

4. In a commercial lease, who pays for the lease?
Typically, in a commercial lease, the tenant pays not only the rent but also for the operating expenses, and the landlord is responsible for making any major repairs, such as structural problems, etc. This can vary depending on the lease agreement.

5. What costs does a tenant usually pay?
Tenants usually pay rent, maintenance charges, and sometimes property tax and insurance, depending on the lease type.