Commercial Real Estate Terms

The commercial real estate industry is full of technical jargon, like industrial or flex space, and acronyms from Cap Rate to RBA. So Transworld Commercial Real Estate felt it would be useful to provide a glossary of commercial real estate terminology to help educate our clients.

Feel free to use this as a resource to answer any and all questions pertaining to the commercial leasing and commercial investment side of the commercial real estate business. Speaking the same language allows us all to move through the commercial real estate process swiftly!

If this glossary brings up any questions please contact us, we’d love to have a conversation.

Actual Property Operating Data (APOD): Actual Property Operating Data or APOD are the actual numbers that are included with a property’s financials. Actual property operating data includes the exact cost of operating expenses like insurance, maintenance, property management, utilities, vendor contracts and similar items.

Anchor Tenant: A large national or regional retailer that serves as a primary draw for a shopping center; a store strategically located in a retail property in order to enhance, bring attention to, or increase traffic at the property. Sometimes called a “destination” tenant, usually these tenants lease at least 25,000 SF.

Availability Rate: The ratio of available space to total rentable space, calculated by dividing the total available square feet by the total rentable square feet.

Available Space: The total amount of space that is currently being marketed as available for lease in a given time period. It includes any space that is available, regardless of whether the space is vacant, occupied, available for sublease, or available at a future date.

Broker Price Opinion (BPO): A broker price opinion or BPO is an appraisal of a property that combines the characteristics of the property, market conditions, and broker expertise to assign a value to the property. Depending on the reason for the broker price opinion that will dictate method of calculation for the value of the property.

Business Brokerage: Business Brokerage transactions can often take place in conjunction with a commercial transaction. Business brokers help professionals to buy a business or sell a business and these transactions will include commercial leases, sales and acquisitions that a commercial agent will handle.

Buyer: The individual, group, company, or entity that has purchased a commercial real estate asset.

Buyer Rep (Buyer Representative): Buyer Rep stands for Buyer Representative. In a typical commercial acquisition transaction between a seller and a buyer, the broker that represents the interests of the buyer is referred to as a Buyer Representative. It is typical in the industry for buyer representation services to be free to the client.

Buyer Representation: Buyer Representation is a service provided by a buyers agent or buyer representative at a commercial brokerage firm. The buyers agent acts as the intermediary between a building seller and building buyer to close a commercial acquisition transaction. Buyer representation services are often provided as a free service to a commercial buyer, because the commissions are paid by the property seller.

Cap Rate: Short for capitalization rate. The Cap Rate is a calculation that reflects the relationship between one year’s net operating income and the current market value of a particular property. The Cap Rate is calculated by dividing the annual net operating income by the sales price (or asking sales price).

Capital Markets: A capital market is an arena where savings and investments are exchanged between those with capital and those who need capital.  Those with the capital include retail and institutional investors and those who use the capital are businesses, governments, and individuals. Examples of a capital market are the stock market and the bond market.

Certificate of Occupancy: A Certificate of Occupancy is an official document issued by a local government authority which authorizes a building or structure to be used or occupied for a specified purpose. This certificate is required before vacant space can be filled.

Commercial Mortgage-Backed Securities (CMBS): Commercial mortgage-backed securities or CMBS are secured by mortgages on commercial real estate properties rather than residential real estate properties. They are the foundation of commercial property financing. A CMBS can provide liquidity to the commercial real estate investors and commercial lenders alike.

Community Center: A shopping center development that has a total square footage between 100,000 – 350,000 SF. Generally will have 2-3 large anchored tenants, but not department store anchors. Community Center typically offers a wider range of apparel and other soft goods than the Neighborhood Center. Among the more common anchors are supermarkets and super drugstores. Community Center tenants sometime contain retailers selling such items as apparel, home improvement/furnishings, toys, electronics or sporting goods. The center is usually configured as a strip, in a straight line, or an “L” or “U” shape.

Construction Starts: Buildings that began construction during a specific period of time. (See also: Deliveries)

Deliveries: Buildings that complete construction during a specified period of time. In order for space to be considered delivered, a certificate of occupancy must have been issued for the property.

Delivery Date: The date a building completes construction and receives a certificate of occupancy.

Developer: The company, entity or individual that transforms raw land to improved property by use of labor, capital and entrepreneurial efforts.

Direct Space: Space that is being offered for lease directly from the landlord or owner of a building, as opposed to space being offered in a building by another tenant (or broker of a tenant) trying to sublet a space that has already been leased.

Equity: Equity in commercial real estate is the difference between the fair market value of the commercial property and the amount of debt owed to a lender.

Existing Inventory: The square footage of buildings that have received a certificate of occupancy and are able to be occupied by tenants. It does not include space in buildings that are either planned, under construction or under renovation.

Freestanding Retail: Single tenant building with a retail tenant. Examples include video stores, fast food restaurant, etc.

Full Service Rental Rate: Rental rates that include all operating expenses such as utilities, electricity, janitorial services, taxes and insurance.

General Retail: Typically are single tenant freestanding general- purpose commercial buildings with parking. Many single retail buildings fall into this use code, especially when they don’t meet any of the more detailed use code descriptions.

Gross Leasable Area (GLA): A Gross Leasable Area or GLA is the amount of floor space available for rent in a commercial property. Gross leasable area can include multiple floors, like the basement or mezzanine level as long as the space was designed for tenant occupancy and exclusive use.

Growth in Inventory: The change in size of the existing square footage in a given area over a given period of time, generally due to the construction of new buildings.

Investment Brokerage: A commercial broker providing Investment Brokerage services helps commercial investors identify and analyze investment opportunities and then navigate the investment acquisition process from financing to negotiations and closing. Commercial investment broker reps often have access to property investment opportunities that will never reach the general public.

Landlord Rep: (Landlord Representative) In a typical lease transaction between an owner/landlord and tenant, the broker that represents the interests of the owner/landlord is referred to as the Landlord Rep.

Landlord Representation: Landlord Representation is a service provided by a commercial broker through a commercial brokerage to act as an intermediary or advisor between a landlord and future tenants of the commercial property. Landlord representation services can be used on a case by case basis or a commercial broker can be retained to manage tenant occupancy on an ongoing basis.

Leased Space: All the space that has a financial lease obligation. It includes all leased space, regardless of whether the space is currently occupied by a tenant. Leased space also includes space being offered for sublease.

Leasing Activity: The volume of square footage that is committed to and signed under a lease obligation for a specific building or market in a given period of time. It includes direct leases, subleases and renewals of existing leases. It also includes any pre-leasing activity in planned, under construction, or under renovation buildings.

Lifestyle Center: An up scale, specialty retail, main street concept shopping center. An open center, usually without anchors, about 300,000 SF GLA or larger, located near affluent neighborhoods, includes upscale retail, trendy restaurants and entertainment retail. Nicely landscaped with convenient parking located close to the stores.

Mall: A Mall is a type of commercial property and is defined as the combined retail center types of Lifestyle Center, Regional Mall and Super Regional Mall.

Market: A Market is a geographic boundary that serves to delineate core areas that are competitive with each other and constitute a generally accepted primary competitive set of areas. Markets are building-type specific, and are non-overlapping contiguous geographic designations having a cumulative sum that matches the boundaries of the entire Region (See also: Region). Markets can be further subdivided into Submarkets. (See also: Submarkets)

Multi-Tenant: A multi-tenant property is a building that can house more than one tenant at a given time. Usually, multi-tenant buildings were designed and built to accommodate many different floor plans and designs for different tenant needs. (See also: Tenancy).

National Association of Industrial and Office Properties (NAIOP): The National Association of Industrial and Office Properties (NAIOP) or the Commercial Real Estate Development Association is a national organization with chapters across the US. NAIOP is the leading organization for commercial real estate knowledge, networking and advocacy.

National Association of Realtors (NAR): The National Association of Realtors or NAR is a national organization of real estate brokers that fosters a high level code of conduct for the industry, provides market updates, and continuing education for its membership. association has its own code of ethics to which it requires its members to adhere.

Neighborhood Center: A Neighborhood Center is a type of commercial property designation that provides for the sale of convenience goods (food, drugs, etc.) and personal services (laundry, dry cleaning, etc.) for day-to-day living needs of the immediate neighborhood with a supermarket being the principal tenant. In theory, the typical gross leasable area (GLA) is 50,000 square feet. In practice, the GLA may range from 30,000 to 100,000 square feet.

Net Absorption: Net Absorption is the net change in occupied space over a given period of time in a specific geographic location. Unless otherwise noted Net Absorption includes direct and sublease space as well. The net absorption metric helps commercial real estate experts understand the supply and demand dynamics of a commercial market.

New Space: New space which is sometimes referred to as first generation space, is commercial space that has never been occupied and/or leased by a tenant. This new space can be highly sought after because of it’s extremely good condition.

Occupied Space: Space that is physically occupied by a tenant. It does not include leased space that is not currently occupied by a tenant.

Outlet Center: Usually located in a rural or occasionally in a tourist location, an Outlet Center consists of manufacturer’s outlet stores selling their own brands at a discount.50,000–500,000SF. An Outlet Center does not have to be anchored. A strip configuration is most common, although some are enclosed malls and others can be arranged in a village cluster.

Owner: The company, entity, or individual that holds title on a given building or property.

Owner Occupied: Owner Occupied refers to commercial property that is owned and occupied by the same professional. Owner occupied services are similar to buyer representation services.

Performa: A performa is a set of data that shows how a potential commercial investment could perform if it was fully leased or rented. A performa is included in the documentation of an investment for sale when there are vacancies to show the full earning potential of that property.

Planned/Proposed: The status of a building that has been announced for future development but not yet started construction.

Power Center: The center typically consists of several freestanding (unconnected) anchors and only a minimum amount of small specialty tenants. 250,000–600,000SF. A Power Center is dominated by several large anchors, including discount department stores, off- price stores, warehouse clubs, or “category killers,” i.e., stores that offer tremendous selection in a particular merchandise category at low prices.

Preleased Space: The amount of space in a building that has been leased prior to its construction completion date, or certificate of occupancy date.

Price/SF: Calculated by dividing the price of a building (either sales price or asking sales price) by the Rentable Building Area (RBA).

Quoted Rental Rate: The asking rate per square foot for a particular building or unit of space by a broker or property owner. Quoted rental rates may differ from the actual rates paid by tenants following the negotiation of all terms and conditions in a specific lease.

RBA: Abbreviation for Rentable Building Area. (See also: Rentable Building Area)

Real Estate Investment Trust (REIT): A real estate investment trust or REIT is an investment company that owns real estate related assets like buildings or land. REITs are sold on the stock market exchanges just like common stock.

Region: Core areas containing a large population nucleus, that together with adjacent communities have a high degree of economic and social integration. Regions are further divided into market areas, called Markets. (See also: Markets)

Regional Mall: Provides shopping goods, general merchandise, apparel, and furniture, and home furnishings in full depth and variety. It is built around the full-line department store with a minimum GLA of 100,000 square feet, as the major drawing power. For even greater comparative shopping, two, three, or more department stores may be included. In theory a regional center has a GLA of 400,000 square feet, and may range from 300,000 to more than 1,000,000 square feet. Regional centers in excess of 750,000 square feet GLA with three or more department stores are considered Super Regional. (See also: Super Regional Mall).

Relet Space: Sometimes called second generation or direct space, refers to existing space that has previously been occupied by another tenant.

Renewal Negotiations: Lease Renewal Negotiation services or renewal negotiations are a form of tenant representation where the commercial representative represents a tenant in negotiations with their landlord to renew a current commercial property lease. The benefit of this service is for the commercial agent to ensure a positive outcome for the tenant and and act as an advocate for their needs.

Rentable Building Area: (RBA) The total square footage of a building that can be occupied by, or assigned to a tenant for the purpose of determining a tenant’s rental obligation. Generally RBA includes a percentage of common areas including all hallways, main lobbies, bathrooms, and telephone closets.

Rental Rates: The annual costs of occupancy for a particular space quoted on a per square foot basis.

Restaurant Representation: Restaurant Representation services or a restaurant representative is where a commercial agent or commercial brokerage firm helps a professional to buy or lease restaurant space, sell restaurant space, or provide site selection services to a corporate restaurant or franchise restaurant business. Restaurant representation services are highly utilized in Colorado commercial real estate due to Colorado’s active and trendy restaurant industry.

Return on Investment (ROI): Return on Investment or ROI is a measure of performance related to the cost of investment and its growth. It can be calculated by the following formula: ROI = (Current Value of Investment – Cost of Investment) / Cost of Investment. Calculating return on investment is important because it allows for the comparison of multiple investments assets to determine optimal investment opportunities.

Sales Price: The total dollar amount paid for a particular property at a particular point in time.

Sales Volume: Sales Volume can be defined as the sum of sales prices for a given group of buildings over a given time period.

Seller: A seller is the individual, group, company, or entity that sells a particular commercial real estate asset.

Seller Representative (Sellers Agent): A Seller Representative is a commercial broker that acts as the sellers agent or listing agent in a commercial sale transaction. The seller representative manages the entire commercial sale process from listing and marketing the commercial property, to identifying buyers, negotiating the LOI and managing all closing activities.

Shopping Center: A Shopping Center encompasses the combined retail center types of a Community Center, Neighborhood Center, or Strip Center. All of these shopping centers are mainly used to provide retail services to patrons.

Single-Tenant: A single-tenant building or property that is occupied, or intended to be occupied by a single occupant. (See also: Build-to-Suit, Owner-Occupied, and Tenancy)

Site Selection: Site Selection services are often part of a franchise or corporate development service package, where a commercial agent helps a franchise or corporation grow their company by identifying new business locations for acquisition or lease. Following site selection, a broker may also provide LOI or RFP negotiation or lease to build out support.

Specialty Center: A Specialty Center is a combined used retail center. Examples of specialty center types are Airport Retail, Outlet Center and a Theme/Festival Center.

Sports and Entertainment Facility: A sports and entertainment facility is property designated suitable for recreational activities, including the following property designations: Amusement Facility, Aquatic Facility/Swimming Pool, Bowling Alley, Casino/Gaming Facility, Equestrian Center/Stable, Fitness, Court and Spa Facility, Golf Related, Racetrack, Skating Rink, Ski Resort, Sports Arena/Stadium, and Theatre/Performing Art Facility.

Square Footage: Square Footage is the size of a lot or floor space of a real estate investment or building. Square footage is calculated by multiplying the length by the width of the structure or land being measured. Square footage is abbreviated SF for Square Feet.

Strip Center: A strip center or strip mall is an attached row of stores or service outlets managed as a coherent retail entity, with on-site parking usually located in front of the stores. Open canopies may connect the storefronts, but a strip center does not have enclosed walkways linking the stores. A strip center may be configured in a straight line, or have an “L” or “U” shape.

Sublease: A sublease is a commercial space that has been leased by a tenant and is being offered for lease back to the market by that same tenant with the lease obligation. Sublease space is sometimes referred to as a sublet. Due to varying circumstances, a tenant may need to exit their leased space, but as per their lease terms, they cannot exit the contractual obligations of the contract, therefore listing the space as a sublease can provide a solution for the interim and duration of the lease.

Submarket: A submarket is a specifically defined area of a larger geographic market. A submarket serves to delineate a core group of commercial buildings that are competitive with each other and constitute a generally accepted primary competitive set, or peer group. Submarkets are building type specific (office, industrial, retail, etc.) with distinct boundaries dependent on different factors relevant to each building type. Submarkets are non-overlapping, contiguous geographic designations having a cumulative sum that matches the boundaries of the Market they are located within (See also: Market).

Super Regional Mall: Similar to a regional mall, but because of its larger size, a super regional mall has more anchors, a deeper selection of merchandise, and draws from a larger population base. As with regional malls, the typical configuration of a super regional mall is as an enclosed mall, frequently with multiple levels (See also: Regional Mall).

Tenancy: Tenancy is a term used to indicate when a tenant has taken possession of a commercial space through a contract called a lease. The terms and duration of that tenancy are outlined in the lease. The will also indicate the level of control the tenant will have over the property during that term.

Tenant Representation: Tenant Representation is a service provided by a commercial broker through a commercial brokerage form. The commercial broker acts as a tenant representative or intermediary between a landlord and a tenant (or lessee) to support negotiations and get the lease transaction to closing.

Tenant Representative: A Tenant Representative or Tenant Rep are used to advise lease clients during a transaction. In a typical lease transaction between an owner or landlord and a tenant, the broker that represents the interests of the tenant is referred to as a Tenant Rep. They provide support to ensure the relationship stays positive prior to closing and use their market expertise to advocate for their client.

Theme/Festival Center: A Festival Center is a commercial retail or mixed used property that  employs a unifying theme that is carried out by the individual shops in their architectural design and, to an extent, in their merchandise. Sometimes the biggest appeal of these centers is to tourists; they can be anchored by restaurants and entertainment facilities. These centers, are generally located in urban areas, tend to be adapted from older, sometimes historic, buildings, and can be part of mixed-use projects. They are usually sized between 80,000 SF and 250,000 SF.

Under Construction: Buildings in a state of construction, up until they receive their certificate of occupancy are deemed under construction. In order for CoStar to consider a building under construction, the site must have a concrete foundation in place. The abbreviation for this term is UC.

Vacancy Rate: A vacancy rate is a measurement expressed as a percentage of the total amount of physically vacant space divided by the total amount of existing inventory. Under construction space generally is not included in vacancy calculations.

Vacant Space: Vacant space is space that is not currently occupied by a tenant, regardless of any lease obligation that may be on the space. Vacant space could be space that is either available or not available. For example, sublease space that is currently being paid for by a tenant but not occupied by that tenant, would be considered vacant space. Likewise, space that has been leased but not yet occupied because of finish work being done, would also be considered vacant space.

Weighted Average Rental Rate: Rental rates that are calculated by factoring in, or weighting, the square footage associated with each particular rental rate. This has the effect of causing rental rates on larger spaces to affect the average more than that of smaller spaces. The weighted average rental rate is calculated by taking the ratio of the square footage associated with the rental rate on each individual available space to the square footage associated with rental rates on all available spaces, multiplying the rental rate by that ratio, and then adding together all the resulting numbers. Unless specifically specified otherwise, rental rate averages include both Direct and Sublet available spaces.

Year Built: Year built refers to the year in which building construction was completed and issued a certificate of occupancy.

YTD: YTD is an abbreviation for Year-to-Date. YTD describes statistics that are cumulative from the beginning of a calendar year through the end of whatever time period is being referenced.