Buying Pre-Leased Commercial Property: How to Judge the Tenant, the Lease and the Real Yield

A pre-leased commercial property is one that is sold with a tenant already in place. For investors it promises rent from day one, without the work of finding a tenant. But the headline yield in a sales brochure is rarely the yield you will actually earn, and the quality of the lease matters as much as the building.

Gross yield and net yield

Gross yield is the annual rent divided by the price. It is the number in the brochure.

Net yield is what you keep. Subtract the costs you will pay as owner, and add the costs of buying to the price.

Here is an illustrative example:

• Price: ₹5 crore. Rent: ₹3 lakh a month, or ₹36 lakh a year.
• Gross yield: 36 ÷ 500 = 7.2%.
• Purchase costs such as stamp duty, registration and fees, say ₹35 lakh.
• Owner’s costs such as property tax, insurance and repairs, say ₹3 lakh a year.
• Net yield: (36 − 3) ÷ (500 + 35) = about 6.2%.

A full point of yield disappears between the brochure and the bank account, and that is before allowing for any months without a tenant.

Read the lease, not the summary

• Time left. How many years remain, and when the tenant can leave. A lease with one year left is a vacancy risk, not an income stream.
• Lock-in. Until when is the tenant committed? After the lock-in, they can usually leave with notice.
• Escalation. How and when the rent rises: about 5% a year, 15% every three years, or something else.
• Renewal. Whether the tenant can renew, and on what terms.
• Deposit. The tenant’s security deposit is usually refundable. When you buy, you normally take on the obligation to repay it, so it should come off the price.
• Who pays what. Maintenance, property tax and repairs change the net yield.

Our guide to Bengaluru lease terms explains each clause.

Judge the tenant

The income is only as reliable as the tenant paying it:

• How large is the brand, and how many outlets does it run?
• How long has it traded at this address, and is the outlet doing well?
• Does the lease sit with a strong parent company, or with a small franchisee?
• Would another brand want this space if the current tenant left?

That last question is the important one. A space in a location with strong demand from other brands carries far less risk than a specialised space that only one tenant could use.

Check the rent against the market

If the current rent is well above what the market pays today, the income may fall when the lease is renewed or the tenant leaves. If it is below market, there may be upside at renewal. Compare it with recent deals on the same street before you rely on it.

Do the usual property checks

Pre-leased does not mean pre-checked. Run the same title and approval checks as for any purchase, including the approved plan and the occupancy certificate, and confirm that the lease itself is registered. Our due diligence checklist covers the title side.

Where GVS fits

Our leasing desk knows what brands pay and which streets they want, and our market and demand intelligence work tells investors who would lease a building if the current tenant left. Book a strategy call before you commit to a purchase.