Preleasing is the practice of signing a lease for space in a building before construction is complete, sometimes before construction even begins, common in both build-to-suit and speculative development. Preleasing benefits developers by reducing leasing risk and can benefit tenants through more favorable terms or greater input into building specifications.
Why preleasing benefits both parties
For developers, securing preleased tenants, especially for speculative buildings, reduces financing risk and can improve loan terms, since lenders view pre-committed income favorably. For tenants, preleasing sometimes unlocks more favorable rent, larger TI allowances, or greater input into building specifications compared to leasing an already-completed speculative building.
What to watch for before committing
Construction completion timeline risk
Understand the risk of construction delays and how your lease addresses potential delivery date slippage.
Rent commencement relative to actual delivery
Confirm rent commencement is tied to actual, verified space delivery, not just a projected completion date.
Specification input opportunity
If preleasing before construction completes, evaluate what input you have into finalizing building specifications relevant to your needs.
Deposit and commitment terms
Understand what deposit or commitment is required at the preleasing stage, and under what conditions it might be refundable.
Contingency protections
Negotiate contingencies protecting you if the building isn't delivered on time or as specified in your preleasing agreement.
Market condition changes during construction
Consider how market conditions might change between preleasing and actual occupancy, and whether your locked-in terms remain favorable.
When you need to know this
- Build-to-suit development projects — committing to a custom-built space before construction begins
- Securing favorable terms in a competitive market — locking in space and pricing before a building completes and demand increases
- Influencing building specifications — gaining input into design before construction is finalized
- Evaluating speculative development opportunities — understanding preleasing as a factor in overall project timing and market dynamics
Frequently asked questions
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