How property owners make money: leases, occupancy and the rent roll
What an owner sells, the main kinds of lease, how each property type works, the path from rent to payout, and the measures owners and investors watch.
Industry brief, with a one-minute summary: Property owners and REITsKey takeaways
- A property owner sells the right to use space for a period of time, written down in a lease.
- Gross lease: the tenant pays one rent and the owner pays the running costs (repairs, insurance, property taxes).
- Net lease: the tenant pays rent plus some or all running costs. In a triple net lease, common for US warehouses and single-tenant buildings, the tenant pays taxes, insurance and maintenance.
- Service charge: in shared buildings such as offices and malls, tenants pay their share of common costs on top of rent.
Key idea
A property owner sells the right to use space for a period of time, written down in a lease. Its income is the rent roll: every lease, its rent, how the rent changes, and when it ends. Profit comes from keeping space full at good rents while keeping costs and the cost of debt under control. The building's value is that income capitalised, so income and value usually move together, but interest rates can move value on their own.
This module is about the owners and operators of finished buildings. Developing and building them, and the basics of valuing a property with a cap rate, are in the construction, real estate and infrastructure module. Owners range from individuals to pension funds, but the listed ones are mostly REITs (real estate investment trusts): companies or trusts that own income-producing property and, in return for paying out most of their income, pay little or no tax at the company level. Nareit, the US REIT association, counts REIT laws in 42 countries and regions.
| Type | Who rents it | Typical lease | What drives demand | Examples of owners |
|---|---|---|---|---|
| Offices | Companies, governments | Several years, often 5 to 10, with rent-free months to win tenants | Office jobs, how often staff come in, quality of the building | BXP (US), Landsec (UK), Embassy Office Parks REIT (India) |
| Logistics warehouses | Retailers, online sellers, logistics firms, manufacturers | Several years, often net leases where the tenant pays running costs | Online shopping, stock levels, near-shoring, land near cities | Prologis, SEGRO, Mapletree Logistics Trust |
| Rental homes | Households | Usually one year or less | Household growth, wages, home prices and mortgage rates | Equity Residential, AvalonBay (US), Vonovia (Germany), Dubai Residential REIT |
| Shopping centres | Retailers, restaurants, cinemas | Several years, rent often partly linked to the tenant's sales | Shopper visits, tenant sales, online competition | Unibail-Rodamco-Westfield, Link REIT, CapitaLand Integrated Commercial Trust |
| Specialist (data centres, self storage, healthcare) | Cloud firms, households, care operators | Varies widely | Power supply, local need | Data centre and healthcare REITs |
So-what
Short leases (homes) let rents follow the market quickly, up or down. Long leases (offices, warehouses) lock in income but mean the owner waits years to catch up with a rising market, or is protected for years in a falling one.
Who pays the running costs: the main kinds of lease
- Gross lease: the tenant pays one rent and the owner pays the running costs (repairs, insurance, property taxes). Common for rented homes.
- Net lease: the tenant pays rent plus some or all running costs. In a triple net lease, common for US warehouses and single-tenant buildings, the tenant pays taxes, insurance and maintenance.
- Service charge: in shared buildings such as offices and malls, tenants pay their share of common costs on top of rent. When space is empty, the owner pays that share itself.
- Rent changes during the lease: fixed steps (in India, office leases often rise about 15 percent every three years, as Embassy Office Parks REIT reports), links to inflation, or reviews to market rent.
- Incentives: rent-free months, fit-out money or lower rent at the start, used to win tenants without cutting the headline rent.
- Payout to investors
- Rent rollSpace x occupancy x rent per square metre, after incentives
- Key: Net operating income (NOI)Rent and other property income minus property running costs the owner pays
- Minus overheadsHead office costs, or management fees paid to an outside manager
- Minus interestOn the debt used to buy the buildings
- Funds from operations (FFO)Net income with property depreciation and gains or losses on selling property added back
- PayoutREIT rules require most taxable income to be paid out; the rest funds upkeep
Most REITs report each step. Funds from operations (FFO) is the US measure of recurring cash earnings; Europe uses a similar measure called EPRA earnings.
Key measures, in plain words
- Occupancy: the share of space that is let. Prologis's warehouses were 95.8 percent occupied at the end of 2025.
- Same-store (or like-for-like) NOI growth: the change in NOI from buildings owned in both years, so purchases and sales do not distort it.
- Rent reversion, or rent change on rollover: how much the new rent on a renewed or re-let lease differs from the old one. A big positive figure means rents in place are below market.
- Weighted average lease expiry (WALE): the average time left on leases, weighted by rent. Longer means steadier income.
- FFO per share: recurring earnings per share, the base for the payout.
- Net asset value (NAV), or EPRA net tangible assets (NTA): the value of the properties minus debt, per share. Listed REITs can trade well above or below it.
- Loan to value (LTV) or gearing: debt as a share of property value. Interest cover: income divided by interest.
A logistics park in the Netherlands has 200,000 square metres. It is 95 percent let at an average of EUR 70 per square metre a year. What is its yearly rent, in EUR million?
A warehouse owner reports that new leases are being signed at rents 40 percent above the leases they replace. What does that tell you?
Why does a REIT usually report FFO as well as net income?
Sources for this lesson (5)
- Recognized public explanations of case-interview concepts and terms
- Nareit, funds from operations white paper (definition of FFO), December 2018
- EPRA, Best Practices Recommendations guidelines (EPRA earnings, NTA, vacancy), September 2024
- Embassy Office Parks REIT, Q1 FY2027 earnings presentation (contracted rent escalations), July 2026
- Prologis, fourth quarter and full year 2025 results (Form 8-K exhibit 99.2), January 2026
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It builds on what you just read, in Real estate operators: REITs, offices, warehouses and rental homes.
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