Commercial Property Investment

Commercial property is an excellent investment option thanks to price growth dynamics that resist inflation and the regular income it supplies. Commercial real estate is nevertheless associated with cost-intensive maintenance, but it doesn’t have to be the case, especially since there are lease contracts that transfer the financial burden to the tenant. This removes many time consuming obligations and simplifies the accounting for the investor.

This article by Tranio expert, Yulia Kozhevnikova, explains key income and expenditure as well as lease contracts to look for when investing in commercial property.

Income: rental income and depreciation

The main sources of income from commercial property include rental revenue, capitalisation as well as advertising opportunities. We also include depreciation, as a means to decrease reduce the tax burden.

Sources of income from commercial property

— property price growth (capital gains)

— outdoor and indoor advertising

— depreciation (deduction on taxable income)

Country specifics in Europe

Rental income is usually paid in advance per month or per quarter with contract clauses specifying adjustments based on economic indicators.

Rental income is paid in advance per month in Austria, Germany and Spain. However, in France the tenant makes quarterly payments. Countries like the UK, Czech Republic and Switzerland practise both monthly and quarterly rental payments.

Initial security deposits equate to three months of rental income according to standard commercial lease terms, but only two months in Spain and six months in Switzerland.

Retail rental rates are calculated according as percentage of annual turnover, from 3 to 10 %, with the exception of anchor tenants (leasing at least 5–15 % of the premises) who usually receive a preferential rate.

Rates for long-term leases (10 years or more) are fixed annually and adjusted to the national inflation index. However, there are exceptions. In Czech Republic, standard commercial lease terms are agreed for three or five years.

VAT is usually included in the rental rate, which the owner then pays to the state. Value Added Tax can be partially recovered if claimed against the repair or construction costs.

“VAT payments by tenants reimburse the investor for VAT paid upon acquisition of the property. This system is automatic in Germany: the state excludes VAT from the cost of the property while rental income compensates the taxes on broker fees and other purchase costs.” – George Kachmazov, managing partner at Tranio

Depreciation allows the investor to gradually convert the cost of their asset into an operational expense that can be deducted from taxable income. Interest accrued on the loan can also be deducted.

Capital gains are constituted by capital value growth during the period of ownership. (i.e., the difference between the purchase and sale price).

Expenses: beneficial contract terms reduce expenditures

 There are one-off costs (e.g., property price, mortgage costs, property tax, broker fee, etc) and recurring costs (maintenance costs, interest on mortgage, etc). One-off expenses for property acquisition and transaction registration equate to about 10 % of the property value.

There can be additional costs related to initial repairs and fit-out depending on the condition of the property.

Acquisition costs Recurring expenses

— property value

due diligence (accounting, legal and technical expertise)

— real estate agent fee

— sales tax and stamp duty

— notarial and legal fees

— banking costs (account opening, transfers)

— origination fee (payable if loan)

— initial repairs and fit-out, interior design



— loan repayments

— annual property tax*

— utilities*

— maintenance (MEP systems, cleaning, security fees)*

— insurance *

— management company services

— accountancy

— legal fees (if applicable)

— broker’s fee to find tenants (if applicable)


*With NNN lease, these expenses are covered by the tenant

Recurring maintenance costs depend on the type of lease, the nature of which will define what costs the owner and the tenant are responsible for. The most common type of lease is NNN lease where the property owner imposes a triple charge on the tenant (contained in the contract): taxes, insurance and maintenance costs.

Costs incurred by owner per lease type

Type of lease Owner’s expenses
Gross rent lease Maintenance and repairs Insurance Property tax
N lease (Single net lease) Maintenance and repairs Insurance
NN lease (Double net lease) Maintenance and repairs
NNN lease (Triple net lease) Facade and roof repairs
Absolute NNN lease

NNN lease contracts are considered the most risk-averse for investors as the tenant bears responsibility for most expenses. The Absolute NNN lease allows investors to earn passive income and benefit from long-term stability without having to deal with maintenance and repairs.

Country specifics in Europe

Every country has its own typical provisions on expenses and obligations of the owner and the tenant. For instance, the owner in the UK does not incur any expenses because the absolute NNN lease is most common.

Standard commercial lease terms by country 

Country Owner’s expenses Tenant’s costs
Austria — lease: legal fees of 1% annual rental income; 1% state tax; real estate agency commission (3 month rental income).

— service charge: utilities; management services; cleaning fees; insurance and property tax.

— repairs: internal premises.

— VAT on lease: 20%.

repairs: facade and roof.


UK — lease: real estate agency commission  (5–10% annual rental income); legal fee of 5%; VAT at 20%.

— service charge: utilities; insurance; management services; property tax.

— repairs: repairs (in full); maintenance.

— insurance: internal premises directly; exterior with the service charge.

— VAT on lease: 20%.


insurance of the supporting framework included in service charge.

Germany — lease: VAT at 19 %.

— service charge: property tax; utilities; insurance.

— repairs: internal premises.

— VAT on lease: 19 %.

— lease: real estate agency commission (2–4 months income) in most cases.

— repairs excluding structural faults

Spain — service charge: utilities; property tax.

— repairs: internal premises.

— insurance: internal premises.

— VAT on lease: 21 %.

— lease: real estate agency commission (10–15% annual rental income); VAT at 21 %.

— repairs: facade and roof.

— insurance: facade and roof.

Source: Cushman & Wakefield


Capital value growth is strong on residential buy-to-let and commercial property in good locations, making it particularly attractive to foreign investors from countries with weak economic growth and volatile currencies.

At the same time, Europe’s major cities are creating major urban renovation projects to bring new life and investment opportunities to densely developed urban belts, like the port regeneration in Copenhagen. These factors are positive signals for the future of commercial markets.

Yulia Kozhevnikova, Tranio

Tranio is an international property broker with its own dedicated team of journalists and market experts. We publish daily news, high quality analysis on foreign realty, expert advice, and notes on laws and procedures related to buying and leasing properties abroad so that our readers can make their property decisions with confidence.     


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