Warehouse Lease Types Explained: NNN, Gross, Modified Gross & Full Service Leases
Signing a warehouse lease without understanding the lease structure is like agreeing to buy a car without knowing whether insurance and maintenance are included in the price. The type of warehouse lease you sign directly determines your total occupancy costs—and the difference between lease types can add tens of thousands of dollars annually to what you thought you were paying.
Understanding warehouse lease types isn’t just about knowing definitions. It’s about calculating your true costs, negotiating effectively, and avoiding surprises when your first property tax bill arrives. This guide breaks down the four primary lease structures used in industrial real estate, explains what you’ll actually pay under each, and helps you determine which structure makes sense for your operation.
Key Takeaway
Focus on total occupancy cost—the all-in amount you’ll pay annually. Comparing a $9.00/SF NNN lease to an $11.50/SF gross lease requires calculating what the NNN lease actually costs once expenses are added.
The Four Main Warehouse Lease Types
Commercial warehouse leases fall into four primary categories based on how operating expenses are allocated between landlord and tenant. According to the National Association of Industrial and Office Properties (NAIOP), understanding these structures is fundamental to evaluating any industrial real estate opportunity.
Triple Net Lease (NNN)
Most common in industrial real estate
The triple net lease—commonly written as “NNN”—is the dominant lease structure in industrial real estate. Under an NNN lease, the tenant pays base rent plus three categories of operating expenses:
- Property taxes – Annual real estate taxes assessed by the local government
- Property insurance – Building insurance covering structure and common areas
- Common Area Maintenance (CAM) – Shared costs for maintaining parking lots, landscaping, exterior lighting, and building systems
In a warehouse NNN lease, your quoted rent is just the starting point. If a landlord quotes $8.50/SF NNN, your actual cost will be $8.50 plus your pro-rata share of taxes, insurance, and CAM—typically adding $2.00-$4.00/SF depending on the market and property.
Pros
- ✓ Lower quoted base rent
- ✓ Full transparency on operating costs
- ✓ Greater control over some maintenance decisions
- ✓ Standard structure makes market comparisons easier
Cons
- − Variable annual costs (taxes and CAM can increase)
- − Requires monitoring expense reconciliations
- − Budget uncertainty for expense fluctuations
- − Responsibility for costs you don’t control
Gross Lease (Full Service Lease)
All-inclusive pricing
A gross lease—sometimes called a full service lease—represents the opposite end of the spectrum from NNN. Under a gross lease structure, the tenant pays a single, all-inclusive rent that covers base rent plus all operating expenses. The landlord is responsible for paying property taxes, insurance, maintenance, utilities, and other operating costs out of the gross rent collected.
In industrial real estate, pure gross leases are relatively uncommon for warehouses compared to office buildings. When they do appear, the quoted rent will be significantly higher than NNN quotes for comparable properties—because all operating expenses are built into that single number.
Pros
- ✓ Complete budget predictability
- ✓ No surprise reconciliation bills
- ✓ Simplified accounting and administration
- ✓ Easier comparison shopping
Cons
- − Higher quoted rent (expenses built in)
- − Less transparency on actual costs
- − Landlord may pad expense estimates
- − No benefit if actual expenses run lower
Modified Gross Lease
The hybrid approach
The modified gross lease sits between NNN and gross leases, splitting operating expenses between landlord and tenant. According to PropertyMetrics, every modified gross lease is unique—the specific expense allocation is negotiated between parties rather than following a standard formula.
Common modified gross arrangements include:
- Tenant pays utilities and janitorial; landlord pays taxes, insurance, and CAM
- Tenant pays base rent plus expenses above a “base year” threshold
- Tenant pays specific expense categories; landlord pays others
The base year approach deserves special attention. Under this structure, the first year’s operating expenses establish a baseline. The tenant pays the full gross rent in year one, then pays their pro-rata share of any expense increases above that baseline in subsequent years.
Pros
- ✓ More predictable than NNN
- ✓ Lower rent than full gross
- ✓ Flexibility to customize expense allocation
- ✓ Protection from dramatic expense increases
Cons
- − Complexity—must read lease carefully
- − Potential for confusion on who pays what
- − Base year structures still involve reconciliations
- − Less standardization complicates comparisons
Industrial Gross Lease
Modified gross for warehouses
The industrial gross lease is a modified gross variant specifically common in warehouse, manufacturing, and distribution facilities. According to IPG San Francisco, this structure typically requires tenants to pay base rent plus utilities and janitorial services, while landlords retain responsibility for property taxes, insurance, and structural maintenance.
This structure reflects the reality of industrial properties: unlike office buildings, warehouses typically don’t have shared interior common areas requiring janitorial service. Tenants operate independently within their spaces and can directly control their utility consumption.
Typical industrial gross allocation:
- Tenant pays: Base rent + electricity + gas + water/sewer + janitorial for their space
- Landlord pays: Property taxes + insurance + CAM + structural repairs + roof/HVAC
Comparing Warehouse Lease Types
| Lease Type | Tenant Pays | Budget Predictability | Typical Use |
|---|---|---|---|
| Triple Net (NNN) | Base rent + taxes + insurance + CAM | Low – expenses fluctuate | Single-tenant industrial, distribution centers |
| Gross / Full Service | Single all-inclusive rent | High – fixed cost | Uncommon in industrial; more typical in office |
| Modified Gross | Base rent + specified expenses | Medium – some variability | Multi-tenant industrial, negotiated deals |
| Industrial Gross | Base rent + utilities + janitorial | Medium-High | Warehouses, manufacturing, flex space |
Understanding CAM Charges
Common Area Maintenance charges warrant special attention because they represent the most variable component of NNN and modified gross leases. According to JPMorgan, CAM fees cover the costs of maintaining shared areas that benefit all tenants.
Typical warehouse CAM expenses include:
- Parking lot maintenance and repairs
- Exterior lighting
- Landscaping and irrigation
- Snow removal (in applicable markets)
- Common area utilities
- Security systems for shared areas
- Property management fees
CAM charges for industrial properties typically run lower than office or retail because warehouses have fewer shared amenities. Expect CAM in the range of $0.50-$1.50/SF annually for most industrial properties, though this varies significantly by market and property quality.
Negotiation Tip
Savvy tenants negotiate CAM caps or expense stops to limit annual increases. A 5% annual cap, for example, prevents CAM from increasing more than 5% year-over-year regardless of actual expense growth. Also negotiate audit rights to verify landlord expense calculations.
For a deeper dive into the physical specs that affect your lease value, see our guide to loading docks, ceiling heights, and power requirements.
Choosing the Right Lease Type
The right lease structure depends on your priorities, operational sophistication, and risk tolerance.
Choose NNN if:
- You have experienced real estate or finance staff to manage variable expenses
- You’re signing a long-term lease where transparency matters
- You want the lowest possible base rent
- You’re comfortable with annual expense reconciliations
- The market standard is NNN (most industrial markets)
Choose Gross or Modified Gross if:
- Budget certainty is your top priority
- You have limited staff to manage real estate administration
- You’re signing a shorter-term lease
- You’re in a market where gross leases are common
- Unexpected costs would create significant operational problems
If you’re new to warehouse leasing, our beginner’s guide to leasing your first warehouse covers additional terminology you’ll encounter.
Calculate Your True Occupancy Cost
Regardless of lease type, focus on total occupancy cost—the all-in amount you’ll pay annually. Comparing a $9.00/SF NNN lease to an $11.50/SF gross lease requires calculating what the NNN lease actually costs once expenses are added.
Total Occupancy Cost Formula
For NNN leases, request a current operating expense statement from the landlord showing actual expenses. Don’t rely on estimates—actual expenses tell you what you’ll really pay.
For gross leases, remember that simplicity comes at a premium. Landlords build expense cushions into gross rent to protect against cost increases.
Questions to ask before signing any lease:
- What is my total occupancy cost, including all pass-through expenses?
- How have operating expenses trended over the past three years?
- Are there caps on expense increases?
- What audit rights do I have to verify expense calculations?
- How are capital improvements handled—are they passed through or excluded?
- What happens if expenses decrease—do I benefit from savings?
Lease Structure Shapes Your Bottom Line
The warehouse lease type you sign determines far more than your monthly rent check. It defines your exposure to property tax increases, your responsibility for maintenance costs, and your ability to budget accurately. In a typical five-year lease on a 25,000 SF warehouse, the difference between lease structures can exceed $100,000 in total costs.
Before signing any warehouse lease:
- Calculate total occupancy cost under the proposed structure
- Compare to alternative lease types available in your market
- Negotiate expense caps and audit rights
- Understand exactly what you’re paying for—and what surprises might await
For help finding the right type of space for your operation, see our guide on finding the right type of industrial space for your business.
Frequently Asked Questions
What is a triple net (NNN) lease for a warehouse?
A triple net lease requires the tenant to pay base rent plus three additional expense categories: property taxes, property insurance, and common area maintenance (CAM). It’s the most common lease structure for industrial properties. When a landlord quotes “$8.50/SF NNN,” expect your actual cost to be $2-4 higher per square foot once expenses are added.
What are CAM charges in a warehouse lease?
CAM (Common Area Maintenance) charges cover shared expenses like parking lot maintenance, exterior lighting, landscaping, snow removal, and property management fees. For industrial properties, CAM typically runs $0.50-$1.50 per square foot annually—lower than office or retail because warehouses have fewer shared amenities.
What’s the difference between NNN and gross lease?
In an NNN lease, you pay base rent plus separate charges for taxes, insurance, and CAM—giving you transparency but variable costs. In a gross lease, you pay one all-inclusive rent that covers everything—simpler but typically higher. Gross leases are uncommon in industrial real estate but offer complete budget predictability.
How do I calculate total occupancy cost?
Add up all costs: base rent + property taxes + insurance + CAM + utilities + any other pass-through expenses. For NNN leases, request the landlord’s current operating expense statement showing actual costs—don’t rely on estimates. This total occupancy cost is what you should use when comparing properties with different lease structures.
What is an industrial gross lease?
An industrial gross lease is a modified gross structure common in warehouses where tenants pay base rent plus utilities and janitorial, while landlords cover taxes, insurance, CAM, and structural maintenance. It balances predictability with tenant control over direct-use costs like electricity consumption.
Find the Right Warehouse Space
Browse available industrial properties with transparent pricing and flexible terms.
Browse Available SpacesSources
- National Association of Industrial and Office Properties (NAIOP) – Strategic Approaches to NNN Lease Properties
- Prologis – What is a Triple Net Lease
- JPMorgan – CAM Charges in Commercial Real Estate
- Aquila Commercial – CAM Fees Definition and Calculation
- PropertyMetrics – Modified Gross Lease Explained
- IPG San Francisco – Industrial Gross Lease Guide
