Richard Crenian on Net Leases: The True Cost for Landlords

The term “net lease” (and terms like “double net” or “triple net”), in commercial real estate, gets tossed around a lot. For those unfamiliar, it essentially means a tenant agrees to pay  for some or all of the operating expenses of a property, in addition to their base rent. This might include property taxes, building insurance, and general maintenance.

You’d think this gives landlords an easy path to consistent profits. Unfortunately, it’s not that simple. Here’s a breakdown of some hidden costs even net leases don’t eliminate:

Attracting Tenants: The Need for Incentives  Every day a space sits empty is lost income. If the market has a lot of vacancies, landlords get pressured. Offering six months to a year of free rent isn’t uncommon to get that first tenant signature. Moreover, tenants, especially desirable national chains, often have significant bargaining power. They might demand that the landlord contributes to “tenant improvement allowances,” helping fund interior renovations to suit their brand. Offering incentives to attract tenants and preserving profitability requires a delicate balance. Landlords must carefully assess the long-term financial implications of these incentives, ensuring that they do not outweigh the benefits gained from net lease agreements.

The Illusion of Full Occupancy: When Appearances Deceive  A packed building doesn’t always equal a packed bank account for the landlord. Each tenant is likely on a different lease cycle. Many could be enjoying those incentives mentioned earlier. Additionally, with retail properties particularly, it’s crucial to look at percentages. Some tenants pay a base rent plus a percentage of their sales. If sales are weaker than projected, the landlord gets squeezed even with a “full” building. Conducting thorough financial analyses is needed to uncover the hidden costs of seemingly full occupancy. Landlords must assess the stability and sustainability of their rental income, accounting for potential fluctuations in tenant performance and market conditions.

Due Diligence is King: Don’t Be Fooled by Labels  “Net lease” sounds great, but deeper analysis is always the wise move. Before acquiring any commercial property, go over the rent rolls with a fine-tooth comb. How long are the current leases? What are the actual costs, not just the theoretical ones passed to the tenants? And critically analyze the local market. Is this area in a growth period, or could vacancies become your future problem? Understanding the broader market dynamics is paramount. Is the local market experiencing growth, or are vacancies on the rise? By conducting thorough due diligence, landlords can mitigate risks and make informed decisions that align with their investment objectives.

Being a commercial landlord has its ups and downs. Net leases are one of those things that definitely lean towards the “up” side. Net leases are a useful structure, but landlords need to enter with open eyes.  Potential marketing costs, tenant incentives, and careful market analysis must factor into your decisions.  Commercial real estate success comes from understanding the complete financial picture. With a net lease, you know what monthly rent check is coming in. Tenants take on the stuff that fluctuates – taxes, insurance, repairs. Can you say “peace of mind”?  This kind of stability is gold when it comes to planning your business. Another major plus is ditching a big chunk of the landlord’s to-do list. Net leases hand a lot of those day-to-day hassles off to the tenant.  This is a game-changer, especially if you don’t want to be on-call 24/7 or if you manage several properties. 

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The Canadian Real Estate Market is in a Golden Age

Canada has proven to be one of the best destinations to invest in global and domestic capital. When it comes to the 2020 Canadian Real Estate Market, this is the best decade to take advantage of commercial real estate properties in Canada and there are several reasons why.

First, Canada has the highest lease demand in its history. Rent levels are also constantly rising due to market expansion and increased opportunities. Companies renting retail space are also fulfilling their part of the deal by occupying more buildings than ever before.

Canadians aren’t only focused on booming metropolises like Toronto and Vancouver these days. Commercial real estate opportunities are constantly expanding into areas like Saskatoon, Edmonton, and Calgary, among other cities. Let’s analyze the important data of the 2020 Real Estate Market.


Statistics for Canadian Retail Estates

Record demand for properties in the Canadian Real Estate market is due to fluctuating societal changes, advanced technological developments, and various developing policies across several years. Large Canadian cities have become lucrative options for businesses, investors, and residents to take advantage of.

Generally, commercial real estate has been demonstrated as a stable and profitable investment for individuals. For example, the retail sector is changing its perspective and mindset on uses for certain spaces and prime locations. Brick and mortar stores are being transformed into pick-up stations for just about everything from food to clothing.

Food services and cooking facilities are gradually being set up for delivery-only meals, marking a new trend in cities like Toronto and Vancouver. Aging retail properties in the downtown and suburban cores of major markets are being rejuvenated through redevelopment plans.

National statistics for retail properties show that there will be about 4.31MM sq.ft of new supply in 2020 and total retail sales are going to increase by 2.9%. According to CBRE Research, total retail sales per capita are forecasted at $16,801 versus $16,480 in previous years. It is expected that retail in 2020 is expected to outperform its performance from last year.


Looking Beyond The Big Cities 

The biggest real estate changes have historically happened in the largest cities. However, new data suggests that there is movement going on in smaller markets as well. These smaller cities are getting their spotlight due to broader workplace trends and global investments.

Domestic companies also engage the real estate market and compete with foreign capital. Their primary markets are Ottawa, Quebec, and the Waterloo Region. Projections show that many smaller markets will outperform their forecasts, including:

* Montreal by 13.8%

* Quebec by 10%

* Waterloo by 10%

* Ottawa by 8.5%


Regional Statistics 

The Canadian Real Estate Market Outlook forecast shows that Calgary retail commercial retail investments are going to grow over $400 million compared to $386 million in 2019. Even though Calgary is a hot rental market for apartments, the trend is rubbing off on commercial retail as well, and there is noticeable growth.

On the other hand, the total retail sales growth in Saskatoon is projected to have a 3.7% increase in 2020 compared to a year earlier. Along with large mixed-use development projects for both commercial and residential space, it’s expected that the market will grow even further.



Canada is entering the new golden age of retail commercial real estate, and the numbers show it. All indicators are strong and positive. If you want to learn more about it, contact ReDev Properties today.