The language of commercial real estate is often the biggest barrier for first-time industrial investors. Understanding the mechanics of a lease is the difference between a successful investment and a costly mistake.
The Anatomy of the Net Lease
In residential property, you receive “Gross Rent” and pay bills out of it. In the industrial world, the gold standard is the Net Lease.
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The Tenant’s Burden: Under a net lease, the tenant pays for council rates, water, insurance, land tax, and general building maintenance.
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The Landlord’s Responsibility: Usually, the landlord is only responsible for “capital” items—the structural integrity of the roof, the foundations, and the external walls.
Decoding the Yield
When an agent quotes a “6% yield,” they are almost always referring to the Net Yield. This transparency allows for far easier comparison between assets. However, investors must also understand the WALE (Weighted Average Lease Expiry). A 7% yield with only 6 months left on the lease is a much higher-risk proposition than a 5.5% yield with a 5-year lease to a national tenant.
The “Make-Good” Provision
One of the most valuable aspects of industrial property is the “Make-Good” clause. This ensures that when a tenant vacates, they must return the warehouse to its original, clean condition—including repairing any floor damage or removing any mezzanine levels they installed. This significantly reduces the “re-leasing cost” compared to residential properties, where every new tenant often requires fresh paint and carpet at the landlord’s expense.
Disclaimer
This content is intended for general information and educational purposes only. It does not constitute financial, legal, or investment advice. Lease structures, yields, and risk profiles vary by asset and tenant, and independent advice should be sought before making any investment decisions.
Understand industrial leases before you invest
Net leases, WALE, and make-good provisions fundamentally change risk and return dynamics. Taking the time to relearn these mechanics can help residential investors transition into industrial property with greater confidence and clarity.