Encyclopedia
Lease-up
The period of leasing vacant space in a new or renovated building.
For example: A new building's lease-up affects how much income it shows in its first years. (Illustration only, not a real deal.)
This is a general industry term with no single official definition. Your lease or contract wording controls.
Example only, not a real client. Say you buy a newly built light industrial building that is half leased. You budget for a year or more to fill the rest, including free rent, improvement allowances and leasing costs, and keep enough cash to carry the empty units. When leasing takes longer than hoped, your plan holds.
What I’d tell a friend
Budget for the real time and cost of leasing up, not just the final rent. Carrying empty space costs more than most first plans show.
Why it matters to you
Until the space is leased, the income is a forecast. Lenders lend less against it, buyers pay less for it, and the owner carries the taxes, interest and empty-space costs while waiting for tenants.
How to use it in your deal
Owners and buyers should budget for realistic lease-up time, inducements, leasing commissions and carrying costs, using recent local absorption rather than hope. Lenders may hold back funds or require reserves until occupancy hits a target. Tenants signing early in a lease-up often have more negotiating power: ask for free rent, improvement allowances or naming rights.
Landlords should decide early whether to hold out for top rents or fill faster. Model lease-up with realistic downtime, tenant improvements, commissions and free rent, since those costs come before income. Lenders may hold back funds until occupancy targets are met. Start marketing before construction or renovations finish, so tours can begin as soon as the space is ready.
Mistakes I see
Assuming the building will lease at full rent right away. Running out of cash before it stabilizes. Signing early tenants to terms that limit later leasing, like broad exclusive uses.
In BC and Vancouver
No BC rule governs lease-up; lender terms and leases control.
Official sources: Canada Mortgage and Housing Corporation · CanLII (court decisions)
What lease-up means
Lease-up is the period when a new or renovated building is filling with tenants. Income is lower while space sits empty, and costs are higher because of incentives, improvements and leasing fees.
The building’s value usually rises as it fills and income stabilizes.
Planning for it
Be conservative about how long it will take and what incentives you will need to offer. Check what similar buildings nearby have needed recently.
Lenders often look at both current and projected income, and may hold back funds or require more equity until the building reaches a set occupancy. Plan your financing around that.
Questions to ask before you sign
- How long will lease-up realistically take?
- What inducements will I need?
- What reserves does the lender want?
- Do early leases restrict later deals?
Keep reading
Related terms: Stabilized net operating income (NOI), Vacancy rate
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General information for British Columbia only. It isn’t legal, tax, accounting or financial advice, laws and rates change, and reading it doesn’t make you my client. Any numbers or scenarios are hypothetical. Check the linked official source and talk to a lawyer, accountant or other qualified professional before you act or sign anything. See the terms and disclaimer.