NNN Leases Explained: What Your Warehouse Lease Actually Costs
A landlord tells you the rent is “$20 per square foot.” You do the math: 1,500 square feet times $20 equals $30,000 per year or $2,500 per month. You budget for it. Then you sign and realize the actual bill is $3,200 per month. What happened?
NNN. That’s what happened.
NNN stands for “triple net lease,” and it’s standard in industrial real estate. But a lot of tenants don’t understand what’s in it, so they get surprised at lease signing. Here’s how it actually works.
The Three Components
NNN is three separate charges that stack on top of each other:
Base Rent This is what the landlord says: “$20 per square foot.” It’s their payment for the space and their profit. It gets paid directly to the landlord. For a 1,500-SF unit, base rent is $30,000 per year or $2,500 per month.
Real Estate Taxes (Property Taxes) You reimburse your share of what the landlord pays in property taxes. Property taxes on industrial real estate in Durham are roughly 1.0 to 1.3 percent of the assessed property value. In practice, that works out to about $2 to $3.50 per square foot annually for the tenant.
So on a 1,500-SF unit, you’re looking at $3,000 to $5,250 per year in property tax reimbursement, or $250 to $438 per month. The exact number depends on the property value and tax rate.
Insurance This is the landlord’s property insurance (the building shell and roof), which you reimburse. It’s usually $0.50 to $1.50 per square foot annually depending on the building’s age and condition. For a 1,500-SF unit, that’s $750 to $2,250 per year, or $63 to $188 per month.
CAM (Common Area Maintenance) This covers the shared spaces: parking lot, parking lot lighting, landscaping, trash service, hallway lighting, and sometimes lobby maintenance. It runs $1 to $3 per square foot annually. For a 1,500-SF unit, that’s $1,500 to $4,500 per year, or $125 to $375 per month.
The Real Monthly Bill
Let’s add it up for a real scenario: a 1,500-SF unit in South Durham at $20/SF base rent.
Base rent: $2,500/month Property taxes: $325/month (estimate) Insurance: $125/month (estimate) CAM: $225/month (estimate)
Total: $3,175/month
When the landlord told you the rent was “$20 per square foot,” they meant the base rent. But your actual occupancy cost is about $25.40 per square foot annually, or $3,175 per month. That’s 27 percent more than you thought.
In a tight market like Durham, this shock happens constantly. Tenants see “$20/SF” and don’t ask what else is included.
Why NNN Exists
The landlord could charge you $25.40/SF all-in and call it gross rent. The lease would be simpler. Instead, they break it into pieces.
Why? Because tenants pay NNN charges only on the space they occupy. If taxes and insurance rise, tenants pay proportionally more. The landlord isn’t absorbing inflation and volatility. They pass it through to you.
This makes sense for real estate owners. Costs change over time. NNN protects them from being squeezed by rising property taxes or insurance premiums.
What to Watch For
Most NNN leases have an annual reconciliation. The landlord estimates charges, bills you monthly, and then at the end of the year, they reconcile the actual costs. If they overestimated, you get a credit. If they underestimated, you pay the difference. This can create surprise bills in January.
Some leases cap NNN growth at 2 to 5 percent annually. This protects you from sudden spikes. Ask for this if the market is competitive. In a tight market, landlords don’t budge.
Some landlords separate the charges clearly; others lump them. When you see a lease, ask for a “rent abstract” that breaks down base rent, property taxes, insurance, and CAM separately. It’s harder to hide surprises that way.
CAM is a common source of overcharge. Landlords sometimes include expenses that aren’t really “common area.” Parking lot repaving, exterior painting, and roof repairs are sometimes CAM-ed out. Some landlords charge a management fee on top of CAM. Ask what’s included before you sign.
Comparing to Gross Leases
A gross lease bundles everything: the landlord charges you one price, say $25/SF, and covers property taxes, insurance, and maintenance from that. The advantage is simplicity. You know your rent. It doesn’t change.
The disadvantage is that gross rent is usually higher because the landlord is absorbing the volatility and expense risk. If taxes spike, they eat it. If insurance costs climb, they absorb it. Tenants pay for that certainty in higher base rates.
In industrial real estate, NNN is the standard. It’s what you’ll see. Industrial tenants expect NNN and factor it in. Gross leases are rare and usually only available in older, less desirable buildings.
Modified Gross Leases
Some landlords offer modified gross, which is a hybrid. You pay base rent plus a smaller CAM (maybe just parking lot maintenance and trash, not the full building cost). Property taxes and insurance are the landlord’s responsibility.
Modified gross is rare in industrial space but not unheard of. If a landlord offers it, compare the total cost to NNN. It might not actually be cheaper; the base rent might be higher to offset their carried expenses.
How to Read a Lease Abstract
When you’re evaluating a space, the lease abstract should show:
Base annual rent and the per-SF rate NNN charges broken down by category (taxes, insurance, CAM) Whether NNN is estimated or actual Any caps on NNN growth Reconciliation date (usually December 31) Renewal terms and whether NNN increases are included
If the lease doesn’t spell this out, ask the landlord or the broker to provide a summary. Don’t sign without understanding it.
Example Lease Cost Comparison
Let’s compare three scenarios for a 1,500-SF unit in Durham.
Scenario 1: South Durham, newer flex space Base: $20/SF = $2,500/month NNN: $4/SF = $500/month Total: $3,000/month or $3,600/year
Scenario 2: East Durham, older building Base: $16/SF = $2,000/month NNN: $3/SF = $375/month Total: $2,375/month or $28,500/year
Scenario 3: RTP area, premium location Base: $23/SF = $2,875/month NNN: $4.50/SF = $562.50/month Total: $3,437.50/month or $41,250/year
The South Durham and East Durham options differ by $625 per month, or about 26 percent. The RTP premium costs $437.50 more per month than South Durham. Know what you’re paying for.
Negotiating NNN Charges
Can you negotiate NNN? Not really, because it’s a pass-through cost. The landlord isn’t making money on NNN; they’re just billing you for actual expenses.
What you can negotiate is the CAM cap and what’s included in CAM. You can ask for a 2.5 percent annual cap instead of unlimited growth. You can request that certain expenses (roof replacement, parking lot repaving) be excluded from CAM and amortized separately or paid from the landlord’s reserve fund.
You can also negotiate base rent and lease length. A longer lease (three to five years) might get you a lower base rate. A shorter lease (one year) costs more per month but gives you flexibility.
The Bottom Line
When someone tells you the rent is $20/SF, do the math and assume another 20 to 30 percent in NNN charges. That gets you close to your actual occupancy cost. Then ask for the lease abstract and verify. Don’t be surprised.
Industrial space in Durham is tight, and good locations move fast. Understand the cost structure before you commit. Get Flex Space units in South Durham start at $20/SF base with $4 to $5/SF NNN, putting total occupancy at $24 to $25/SF. Check current Durham availability and clarify the full cost structure before you lease.
For a deeper look at where to lease and how different neighborhoods compare, read our guide to Durham’s industrial submarkets to understand pricing across locations.
Additional Resources
FAQ
Can I negotiate NNN charges lower? Not the pass-through costs like property taxes and insurance; those are actual expenses. You can negotiate what goes into CAM and request caps on annual NNN growth. In tight markets, you have little leverage. In soft markets, more room to negotiate.
What if the landlord overestimates CAM and I get stuck overpaying? The lease should include a reconciliation period. At the end of the year, if actual CAM is less than estimated, the landlord issues you a credit. If you’re overpaid all year, that credit is applied to your next month’s rent. Read the reconciliation terms carefully.
Is there a way to lock in my NNN charges so they don’t rise? Some leases include a CAM cap (3 to 5 percent annual growth). Property taxes and insurance can’t be capped because they’re outside the landlord’s control. CAM caps are the biggest protection tenants can get.
How much of the total rent is typically NNN vs. base? In Durham industrial, NNN is usually 20 to 30 percent of the total. So if you’re paying $3,000/month all-in, roughly $600-$900 is NNN. Base is the bigger chunk, but NNN adds up over time.