Glossary

Key terms and definitions for small bay flex industrial real estate. From CAM to cap rates, learn the language of the industry.

Absorption Rate

The rate at which available space is leased in a market over a specific period, indicating demand strength and market health.

Base Year

The reference year used in modified gross leases to establish a baseline for operating expenses, above which tenants pay increases.

Bay Size (Structural Bay)

The distance between structural columns in an industrial building, determining unit flexibility and the origin of the term 'small bay' industrial.

Build-to-Suit (BTS)

A construction arrangement where a building is custom-designed and built for a specific tenant's requirements, typically with a long-term lease commitment.

CAM (Common Area Maintenance)

Shared operating expenses for a commercial property that are passed through to tenants based on their pro-rata share of the building.

Cap Rate (Capitalization Rate)

A measure of a property's expected rate of return, calculated by dividing Net Operating Income by the property's value or purchase price.

Clear Height

The usable vertical space in a warehouse, measured from the finished floor to the lowest hanging obstruction.

Contractor Garage

A small bay industrial unit designed for trade contractors, combining warehouse space for equipment and materials with a basic office or showroom area.

Credit Analysis

The process of evaluating a prospective tenant's financial health and ability to pay rent consistently throughout their lease term.

Dock-High Loading

A loading configuration where the warehouse floor is elevated to match semi-trailer bed height (48-52 inches), enabling direct forklift access to trucks.

DSCR (Debt Service Coverage Ratio)

A measure of a property's ability to cover its debt payments, calculated by dividing Net Operating Income by total annual debt service.

Flex Space

Commercial buildings designed for maximum adaptability, combining warehouse, light manufacturing, and office space in configurable layouts.

Gross Lease (Full Service)

A lease structure where the tenant pays a single rental amount and the landlord covers all operating expenses including taxes, insurance, and maintenance.

Holdover Tenant

A tenant who remains in possession of leased space after their lease expires without signing a renewal or extension.

Last Mile

The final leg of delivery from a distribution point to the end customer, driving demand for small industrial spaces close to population centers.

Lease-Up

The process of filling a newly constructed or repositioned property with tenants until it reaches stabilized occupancy.

Letter of Intent (LOI)

A preliminary document outlining the key business terms of a proposed lease before drafting a formal lease agreement.

Light Industrial

A property classification for buildings used for light manufacturing, assembly, warehousing, and distribution with minimal environmental impact.

Load Factor

The ratio between rentable and usable square footage in a commercial property, representing the tenant's share of common areas.

Modified Gross Lease

A lease structure where the tenant pays base rent plus some operating expenses, with the landlord covering the remainder—a middle ground between gross and NNN.

Multi-Tenant Industrial

An industrial property subdivided into multiple units leased to different tenants, typically ranging from 1,000 to 10,000 square feet each.

NNN Lease (Triple Net)

A lease structure where the tenant pays base rent plus all operating expenses including property taxes, insurance, and maintenance.

NOI (Net Operating Income)

A property's total income minus operating expenses, before debt service and capital expenditures.

Personal Guarantee

A commitment by a business owner to be personally liable for lease obligations if their company defaults.

Pro-Rata Share

A tenant's proportional share of building expenses, calculated as their leased square footage divided by total leasable area.

Rent Abatement (Free Rent)

A lease concession where the tenant pays no rent for a specified period, typically at the beginning of the lease term.

Rent Escalation

Scheduled rent increases built into a lease, typically expressed as a fixed percentage or dollar amount applied annually.

Rent Roll

A document listing all tenants in a property along with their unit details, lease terms, rental rates, and payment status.

Rentable Square Footage (RSF)

The total area a tenant pays rent on, including their usable space plus a proportional share of common areas.

Roll-Up Door (Grade-Level Door)

A sectional overhead door that rolls up vertically, providing direct drive-in access to a warehouse or industrial unit at ground level.

Second Generation Space

Previously occupied commercial space that comes with an existing buildout from the prior tenant.

Security Deposit

Money held by the landlord as financial protection against tenant default, unpaid rent, or property damage.

Shell Condition

The state of completion in which a commercial space is delivered to a tenant, ranging from completely unfinished (cold shell) to move-in ready (warm shell).

Spec Building (Speculative)

A building constructed without a pre-committed tenant, built on speculation that market demand will attract occupants after completion.

Tenant Improvement Allowance (TI)

Money provided by the landlord to help a tenant customize or build out their space, typically expressed as a dollar amount per square foot.

Tenant Underwriting

The comprehensive due diligence process of qualifying prospective tenants by evaluating their creditworthiness, business viability, and fit for a property.

Trade Contractor

Skilled tradespeople and their businesses—HVAC, plumbing, electrical, roofing, and similar services—who make up the core tenant base for small bay industrial.

Usable Square Footage (USF)

The actual space a tenant occupies and controls exclusively, measured from wall to wall within their demised premises.

Vacancy Rate

The percentage of available space in a market or property that is unoccupied and available for lease.

Vanilla Shell

A commercial space delivered with only basic finishes—concrete floors, drywall, electrical panel, and roll-up door—ready for tenant buildout.