Lease-Up
The process of filling a newly constructed or repositioned property with tenants until it reaches stabilized occupancy.
Definition
Lease-up is the period between when a property is ready for occupancy and when it achieves stabilized occupancy, typically defined as 90-95% leased. For small bay developers, lease-up is a critical phase that directly impacts project returns and lender requirements. New construction often begins lease-up before completion, signing tenants to leases that commence upon delivery. Factors affecting lease-up velocity include market conditions, pricing, location, unit mix, and marketing efforts. Developers typically budget for 6-18 months of lease-up depending on project size and market absorption rates. During this period, the property may operate at a loss, which must be factored into development pro formas.
Example
A developer completes a 40-unit small bay flex project. They signed 8 tenants during construction and deliver with 20% pre-leased. Over the next 12 months, they lease 2-3 units per month, reaching 90% occupancy and triggering their permanent financing takeout.
See Also
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