Net leases are making waves in Australia’s commercial real estate scene, especially as investors look for stable, inflation-resistant returns in 2025. But what exactly is a net lease, and how does it differ from other property leasing models? Whether you’re a seasoned commercial landlord, a retail investor, or a first-timer considering commercial property, understanding the ins and outs of net leases can help you make sharper, more strategic decisions.
What Is a Net Lease? The Basics, Australian-Style
At its core, a net lease is a commercial property rental agreement where the tenant pays not just the base rent, but also some or all of the property’s outgoings. In Australia, this typically covers costs such as council rates, insurance, and maintenance.
- Single Net Lease (N): Tenant covers base rent plus one expense (often rates).
- Double Net Lease (NN): Tenant pays rent plus two expenses (usually rates and insurance).
- Triple Net Lease (NNN): Tenant shoulders nearly all outgoings, including maintenance.
These lease structures are especially common in retail and industrial properties. For example, a logistics company leasing a warehouse in Brisbane under a triple net lease might pay for building insurance, land tax, and even major repairs, on top of rent.
Why Net Leases Are Trending in 2025
Australian commercial property saw strong demand for net lease assets throughout 2024, and that momentum is rolling into 2025. Here’s why:
- Stable, Predictable Returns: Landlords pass variable costs to tenants, making rental income more reliable—crucial in today’s inflationary environment.
- Appeal to Institutional Investors: Super funds and property trusts are snapping up net lease assets for their low-risk profile and hands-off management.
- Favourable Lending Conditions: Banks tend to look favourably on net lease assets due to steady cash flow, often offering better loan terms.
According to CoreLogic, NNN leases are particularly attractive as interest rates remain elevated, since landlords can sidestep rising insurance and maintenance costs.
Key Risks and Considerations for Investors
While net leases offer strong upside, they’re not risk-free. Some key points to keep in mind in 2025:
- Tenant Quality Is Everything: With tenants responsible for most costs, a default can leave landlords exposed to large, unexpected bills.
- Lease Structure Matters: Carefully review which outgoings are included. Some ‘net leases’ still leave certain costs with the landlord, especially for capital works or unexpected repairs.
- Market Trends: Retail and industrial net leases remain robust, but office property net leases are under pressure as remote work continues to impact demand.
- Regulatory Shifts: The 2025 update to Australia’s Commercial Tenancy Code is strengthening disclosure rules, making it easier (and safer) for both parties to understand their obligations.
For example, a Melbourne investor recently bought a suburban retail strip with net-leased cafes and medical tenancies. Thanks to the new Code, all outgoings were itemised up front—reducing the risk of disputes down the track.
Real-World Examples: How Net Leases Play Out
Let’s look at two scenarios:
- Retail Strip Success: A Sydney investor acquires a triple net-leased pharmacy. The tenant pays all rates, insurance, and maintenance. The landlord’s only job is to collect rent and monitor lease compliance. With CPI-linked rent reviews, income keeps pace with inflation.
- Industrial Risk: An industrial warehouse in Perth is leased on a double net basis. The tenant goes bust, leaving unpaid insurance and rates. The landlord must step in and cover costs until a new tenant is found—highlighting the importance of thorough tenant vetting and insurance.
What’s Next for Net Leases in Australia?
Net leases are set to remain a cornerstone of Australia’s commercial property market, with more institutional and private investors seeking them out in 2025. Expect:
- Continued demand for NNN assets in retail and logistics.
- Greater transparency and standardisation in lease agreements due to regulatory reforms.
- Ongoing focus on tenant quality and lease durability as economic conditions remain uncertain.
