Plain-English definitions of Australian commercial real estate terms — answer-first, so the meaning lands in the first line.
Plain-English definitions of the commercial real estate terms used across Arealytics and the Australian market. Answer-first, so the meaning lands in the first line — for you and for AI assistants.
The capitalisation rate is a property's annual net income expressed as a percentage of its value or price (net income divided by value). It is the primary way commercial property is valued and compared — a lower cap rate means a higher price relative to income, and vice versa. “Prime yield” refers to the cap rates achieved on the best-quality assets in a market.
Net (face) rent is the base rent a tenant pays before incentives, with the tenant separately responsible for outgoings such as rates, insurance and maintenance. Gross rent bundles those outgoings into a single figure. “Face” rent is the headline rate written into the lease, before any incentives are deducted.
Effective rent is the real rent a landlord receives after deducting incentives and amortising them over the lease term. It is a truer measure of market conditions than face rent, because two leases with the same face rent can have very different effective rents once incentives are taken into account.
Incentives are concessions a landlord gives a tenant to sign or renew a lease — typically rent-free periods, fit-out contributions or cash. They are usually quoted as a percentage of total lease value. Because high incentives can make a headline (face) rent overstate the true economics, effective rent is used to compare deals fairly.
Net Lettable Area (NLA) is the floor area a tenant can exclusively occupy and pay rent on, excluding common areas. Gross Lettable Area (GLA, or GLAR for retail) includes additional leasable space. Both are measured to Property Council of Australia (PCA) standards, and rents should always be compared on a consistent area basis.
WALE is the average time until the leases in a property or portfolio expire, weighted by income (or by area). A longer WALE means more secure, predictable income; a short WALE signals near-term re-leasing risk. It is a key metric when valuing income-producing assets and REIT portfolios.
Net absorption is the change in occupied space over a period — space leased minus space vacated. Positive net absorption means tenants took up more space than they gave back, indicating a strengthening market; negative net absorption indicates the opposite. It is a core demand indicator alongside vacancy.
The vacancy rate is the proportion of lettable space in a market or building that is unoccupied and available, expressed as a percentage. It is the headline measure of the supply and demand balance — rising vacancy typically pressures rents down and pushes incentives up.
“Prime” describes the highest-quality assets in a market — modern, well-located and well-leased — while “secondary” covers older or less competitive stock. The two often move differently: a “flight to quality” can tighten prime vacancy and yields even as secondary assets soften.
Australian office buildings are graded by the Property Council of Australia from Premium (the best) through A, B and C, based on quality, age, services and location. Grade strongly influences rent, vacancy and yield, so office market data is usually reported by grade.
Outgoings are the recoverable costs of running a property — council rates, land tax, insurance, building management and maintenance. Under a net lease the tenant pays outgoings on top of rent; under a gross lease the landlord absorbs them into the rent.
Make-good is a tenant's obligation to return premises to an agreed condition at the end of a lease — often removing fit-out and reinstating the original state. Make-good scope and cost are a common point of negotiation and friction at lease expiry.
Reversion is the difference between a property's current passing rent and the market rent it could achieve on renewal or re-letting. An “under-rented” (reversionary) asset has rental upside as leases roll to market; an “over-rented” asset faces downside.
Gross building area is the total floor area of a building measured to its outer walls, across all levels. It is a broad measure of building size used for benchmarking and development analysis, and is distinct from lettable area (NLA/GLA), which excludes common and non-leasable space.
A comparable is a recent, similar sale or lease used as evidence to value or price a property. Good comparables match on location, asset class, quality, size and timing. Reliable comparable sales and lease evidence are the foundation of commercial valuation and negotiation.
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