Buying pre-leased commercial: what to check before the yield
The rent is the easy part. The tenant covenant, the lock-in and the exit are what decide whether the yield survives.
A pre-leased commercial asset comes with a tenant already paying rent, so income starts on day one. That convenience is why these assets trade at a premium — and why the analysis has to go past the headline yield.
Start with the tenant, not the building. A listed company with an investment-grade rating on a ten-year lease is a different asset from a co-working operator on a lease whose lock-in has expired, even if both pay identical rent today. Ask for the rating, the audited financials and the parent guarantee if there is one.
Then the lock-in. Rent is contracted only until the tenant can lawfully leave. Once the lock-in expires, your income depends on a renewal negotiation at whatever the market is then. A high yield with an expired lock-in is not a high yield — it is a vacancy risk that the price has already recognised.
Check who pays what. Maintenance, property tax, electricity and structural repair are negotiable, and a lease where the owner carries outgoings has a materially lower net yield than the gross figure suggests.
Finally, the exit. Commercial resale depends on the lease you hand the next buyer. An asset with two years left is harder to sell than the same asset with seven — plan the sale before you buy.