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What letting commercial space returns once the void and the empty rates are in

The headline rent on a commercial letting is the easy number. What decides the return is everything around it: the rent free period the tenant will insist on, the agent and the legals on each letting, the business rates that land on the landlord the day the unit empties, and the service charge shortfall on anything that is not let. This prices a whole cycle rather than a single year.

For: A landlord letting a shop, office, unit or warehouse

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The unit
What is it?
Six months of empty rates relief rather than three, which materially reduces the cost of a void.
ft²
£
Average prime industrial rents reached about £15.55 a square foot by mid-2025. Secondary City offices averaged £37 in late 2025 and prime City offices hit a record £130.80 in Q1 2026.
£
The tenant's bill while they are there and yours the moment they leave. £13,824 a year on the small business multiplier of 43.2p.
£
Used to express the return as a yield.
The lease you are offering
yr
yr
The term to the break is the term that matters, for the valuation and for this calculation. A ten year lease with a break at five is a five year lease with an option, and a valuer will price it as one.
mo
Three months on a short term, six to twelve on a longer one, and more in a weak market. It is the standard currency of a commercial letting and it never appears in the quoted rent, which is exactly why headline rents hold up when the market is falling.
£
A cash contribution to the tenant's works, common on offices. It is an incentive like rent free and belongs in the same calculation.
yr
%
An upward-only open market review can produce nothing at all in a flat market, which is why it is only ever worth what the market gives it. An index-linked review is more predictable and tenants resist it harder.
Full repairing and insuring?
The tenant carries repairs, insurance and rates. Standard on UK commercial, and the reason commercial looks so much better than residential until the unit empties.
Running it and reletting it
%
Three to five per cent on a single let unit, more on a multi-let building with a service charge to run.
%
Structural items outside the tenant's covenant, professional fees, and the parts of a service charge that cannot be recovered.
£
On a multi-let estate the landlord carries the share attributable to anything unlet. It rises exactly when the income falls, which is what makes a multi-let void hurt twice.
mo
Six months on industrial, nine to twelve on secondary retail and offices. Industrial or warehouse gets 6 months of empty rates relief, after which the full charge lands on you.
%
Ten to fifteen per cent of the first year's rent, payable on every letting rather than once.
£
Yours, and sometimes theirs. A short lease costs almost as much to document as a long one, which is an argument for longer terms.
£
Making good, redecoration, and whatever the next tenant needs that this one did not. Also anything required to reach EPC E, without which it cannot be let at all.
£
Capped by the diminution in the building's value under section 18, so a full schedule rarely settles in full. Nothing at all if the tenant has gone into administration, which is when you most need it.
What the letting actually produces, averaged across a cycle£29,226The headline rent is £44,000, or £11.00 a square foot. Spread the £22,000 of incentive across the 5 years to the break and the effective rent is £40,178, or £10.04 a foot. Take off the landlord costs and the void at the end and it averages £29,226 a year, which is a 5.6% yield against a 8.5% headline.
£44,000Headline rent
£40,178Effective rent
£22,549Cost of the void
8.5%Headline yield
5.6%Cycle yield
Kept72%Incentive10%Void and reletting10%Management8%
The rent, properly stated
Headline rent£44,000
£11.00 a square foot. This is the figure that goes on the comparables and the one both agents will quote.
Less the incentive−£22,000
6 months rent free, spread across the 5 years to the break. That is 10.0% of the rent over the term.
Plus review uplift+£2,891
Reviews every 5 years at 2.50% a year, taken at half value because an upward-only open market review gives nothing in a flat market.
Effective rent£40,178
£10.04 a square foot, against a £11.00 headline. This is what the deal actually produces, and it is the number to compare two offers on.
While it is let
Management−£1,760
Non-recoverable costs−£1,760
On an FRI lease the tenant carries repairs, insurance and rates. This is what still reaches you.
Net income while let£36,658
A 7.0% yield on £520,000, against 8.5% on the headline rent.
When they leave
Rent you do not receive−£18,329
6 months.
Empty business rates−£0
6 months of relief on industrial or warehouse, then £13,824 a year in full. This is the cost that makes a long void genuinely painful rather than merely annoying.
Holding costs while empty−£440
Insurance, security, and keeping the services live enough to show it.
Letting the unit again−£7,780
Agent at 12% of the first year's rent, plus £2,500 of legals. Payable every time, which is the strongest argument for a longer term.
Dilapidations recovered+£4,000
Capped by the diminution in the building's value under section 18 of the Landlord and Tenant Act 1927, so a full schedule rarely settles in full, and nothing at all against a tenant in administration.
Total cost of the void£22,549
0.6 years of net income. That is what the lease term is protecting you from, and it is why the unexpired term does more to the value than the rent does.
What the negotiation is worth
Removing the break at year 5£5,359
A 10 year term with no break averages £34,585 a year rather than £29,226, because the void and the reletting costs are spread across twice as long. Giving up rent free to remove a break is very often the right trade.
One month less rent free£733
Per year of the term. Small on its own, and it is also the cleanest thing to trade against something you want more, such as a longer term or a personal guarantee.
One month less void£683
Per year averaged. Marketing before the tenant leaves rather than after is the cheapest way to buy this, and it is free.
Where these figures come from

Rents. Prime industrial headline rents reached about £15.55 a square foot by mid-2025. Secondary City office rents averaged £37 a square foot in late 2025, down 19% year on year, while prime City offices hit a record £130.80 in Q1 2026.

Business rates 2026/27. Small business multiplier 43.2p below a £51,000 rateable value, standard 48.0p at or above it, and a permanently lower retail, hospitality and leisure multiplier of 38.2p. Small business relief gives 100% relief to £12,000, tapering to £15,000. Empty property relief runs three months, or six on industrial, after which the full charge falls on the owner.

Dilapidations. The UK average across sectors is about £7.27 a square foot, with London offices at £15 to £35. Recovery is capped by the diminution in the building's value under section 18 of the Landlord and Tenant Act 1927.

Before tax. The effective rent is the number to judge a letting on, and it is never the one quoted: incentives are how a falling market is hidden inside a headline rent that holds up. Where a lease is protected by the Landlord and Tenant Act 1954 the tenant has a statutory right to renew, which reduces the void risk and limits your ability to get the building back, so contracting out has to be done properly and before the lease is completed. A commercial property cannot be let at all below EPC E, and the commercial minimum standard is expected to tighten further, so an old building with a poor rating has a capital cost attached to its next letting whatever the rent. Check the tenant's covenant properly: an FRI lease is only as good as the company that signed it. An estimate, not advice and not a valuation.

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