Costs for Landlords Leasing a Commercial or Industrial Property to a New Tenant
Securing a quality tenant is one of the most important factors in maximising the return on a commercial or industrial property. While a new lease provides long-term income and can increase the value of your investment, landlords should be aware of the costs involved in attracting and securing the right tenant.
Commercial Leasing Agent’s Fees
For most landlords, the largest leasing expense is the commercial agent’s commission. Fees vary depending on the property’s location, value and lease terms, but typically include:
Leasing commission: Generally between 10% – 20% of the first year’s gross rent, or the equivalent of one to two months’ rent depending on lease value and length of initial term.
Always confirm exactly what services are included, such as inspections, marketing, negotiations and tenant qualification before signing any agency agreement with your agent.
Marketing Costs
To attract quality tenants, landlords may also incur advertising expenses, including:
- Online commercial property listings
- Professional photography
- Signboard installation
- Floor plans
- Video marketing or drone photography (optional)
Marketing costs can range upwards from $500 depending on the campaign, market conditions and property type.
Legal Costs
A commercial solicitor will usually prepare or review the lease documentation. Typical legal costs range from $1,000 to $3,000 or more, depending on the complexity of the lease and any special conditions to be included.
Incentives
In competitive markets, landlords often offer leasing incentives to attract quality tenants. These may include:
- Rent-free periods
- Reduced rent during the initial term
- Fit-out contributions
- Cash incentives
- Additional car parks or storage areas
The value of incentives varies depending on market conditions, competitiveness of similar stock, lease length and tenant quality. While incentives reduce the landlord’s short-term return, they can help secure a strong long-term tenant.
Fit-Out Contributions
Some tenants require alterations before occupying the premises. Depending on negotiations, landlords may contribute towards:
- Office partitions
- Air-conditioning upgrades
- Electrical works
- Lighting
- Amenities
- Flooring or repainting
Fit-out incentives are generally negotiated in exchange for a longer lease term and instead of rental incentives.
Repairs and Maintenance
Before marketing a property, landlords should ensure it presents well. Common costs include:
- Painting
- Carpet replacement
- Roof repairs
- Servicing air-conditioning
- General maintenance
- Cleaning
- Landscaping
- Compliance works
Well-presented properties generally lease faster and attract stronger tenants. Landlords should always check leasing documentation from the previous tenant for ‘make good’ clauses as they may be reasonable for some of the above costs.
Vacancy Costs
One of the largest hidden expenses is the cost of vacancy. While a property remains unleased, landlords continue to pay all operating costs for the premises, including:
- Loan repayments
- Council rates
- Water charges
- Insurance
- Body corporate levies (if applicable)
- Land tax (where applicable)
- Security and maintenance
- Utility charges for common areas
Minimising vacancy through proactive marketing and realistic pricing is often more valuable than holding out for a slightly higher rent.
Building Compliance
All landlords are responsible for ensuring the property complies with relevant territory legislation, which may require:
- Annual fire safety compliance
- Essential services maintenance
- Electrical and mechanical servicing
- Workplace health and safety compliance
- Building certification updates where required
Maintaining compliance protects both landlord and tenant and reduces the risk of future disputes.
Investing in the Right Tenant
While leasing costs can seem significant, securing a financially strong tenant on a well-structured lease can substantially improve the long-term value of your property. A quality tenant reduces vacancy risk, provides reliable rental income and enhances the property’s appeal to future investors.
Disclaimer This article is general in nature, and outlines general market trends and a general analysis of one or more particular areas. This article should not be construed as providing financial advice (particularly as to whether a reader should or should not invest in a particular area). For financial advice we recommend that readers contact a licensed financial planner to obtain specific advice that takes into account their particular circumstances. Top Property Agents Australia Pty Ltd is not licensed to provide financial advice under the Corporations Act 2001 (Cth) and related legislation.