The difference between a Fully Serviced and a NNN lease rate

the difference between FS NNNWhen quoting lease rental rates, office building owners will provide a $/sf number that is either a ‘Fully Serviced (gross)’ rate or a ‘NNN (triple net)’ rate.

In a Fully Serviced (gross) lease, operating expenses and real estate taxes are included in the rent.

In a NNN (triple net) lease, operating expenses and real estate taxes are not included in the rent.

What are the Operating Expenses (OPEX)?

In an office lease there is an ‘Operating Expenses’ clause identifying what is considered to be an OPEX and what is not.  The main OPEX costs are: water, sewer, garbage, electricity, insurance, janitorial services, common area maintenance costs, amortized capital improvements performed to the building, etc.

What are the Real Estate Taxes?

Real estate taxes are… obviously… the real estate taxes the government charges based on the appraised value of the building.

Often, the OPEX and RE Tax combined cost is called the ‘NNN’s’ pronounced as ‘nets’.

Here is a fancy formula for calculating this:

NNN’s + Quoted NNN Rental Rate = Quoted Fully Serviced Rental Rate

If a company is considering two buildings and one is quoting a NNN rate and the other is quoting a Fully Serviced rental rate, then they must ask the owner quoting the NNN rate the following questions:

  1. What were the 3 previous years NNN’s?
  2. What are the projected NNN’s for the current year and next year?

Then once you know the NNN’s, you can perform the formula above!

Generally NNN’s range between $14.00/rsf  – $7.00/rsf for Class A – C buildings.  Class B & C are all over the board but NNN’s for Class A high-rise buildings are usually north of $10.00/rsf.

Also, some buildings will quote a ‘modified gross’ rate which is when the tenant pays for some but not all of the NNN’s.

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