A pre-let is an agreement under which an occupier commits to take a lease of a building on practical completion, to an agreed specification and on agreed terms, before or during construction. It secures the income that underpins a forward funding or forward purchase, and it is one of the strongest ways to de-risk a development in the eyes of an investor.

What is the difference between a pre-let and a pre-sale?

A pre-let secures a tenant who will occupy and pay rent on completion, which creates the income an investor buys. A pre-sale secures a buyer for the completed asset itself. A scheme can be both: pre-let to an occupier and pre-sold to an investor through a forward purchase, which removes both letting risk and exit risk.

How does a pre-let affect forward funding pricing?

A pre-let to a strong covenant sharpens the yield an investor will accept, because it removes letting risk and fixes the income. A speculative scheme with no pre-let prices at a softer yield and a higher developer return to reflect the risk that it lets slowly or at a lower rent. The strength and length of the pre-let covenant is one of the biggest single drivers of price.

What is an agreement for lease?

An agreement for lease is the contract that binds an occupier to enter into a lease once the building is practically complete and meets the agreed specification. It sets the rent, term, incentives and the specification the developer must deliver, and it is the document that turns a pre-let commitment into an enforceable obligation underpinning the funding.

Do all forward fundings need a pre-let?

No. Many forward fundings proceed speculatively, particularly in sectors with deep occupier demand such as logistics and Build to Rent, where investors will fund without a pre-let but price in letting risk. A pre-let is not always required, but it almost always improves pricing and widens the pool of investors willing to commit.

Pre-let and Pre-sale Structures

A pre-let is an agreement for an occupier to take a lease on completion, and a pre-sale is an agreement to buy the completed asset, both of which de-risk a forward funding by securing income or exit before construction finishes. They are the documents that convert a development proposition into a fundable one, because they replace the uncertainty of an open-market letting or sale with a contracted outcome.

This page explains how pre-let and pre-sale structures work and how they affect the funding. For the structures they support, see the anchor guide to forward funding and the forward purchase explainer.

What a pre-let is

A pre-let binds an occupier to take a lease of the completed building through an agreement for lease, fixing the income that an investor is ultimately buying. The agreement for lease commits the occupier to enter into a lease on practical completion, provided the building is delivered to the agreed specification, and it sets the rent, term, review pattern and any incentives.

For an investor funding a development, the pre-let is what turns a construction risk into an income asset. Instead of funding a building and hoping it lets, the investor funds a building that is contracted to be let to a known covenant on known terms. The strength of that covenant, the length of the lease and the certainty of the specification are what the investor is really underwriting.

How pre-lets drive pricing

A pre-let to a strong covenant sharpens the yield an investor will accept and reduces the developer return required, because it removes the letting risk that a speculative scheme carries. Pricing follows risk, and a contracted income to a good covenant is close to the lowest-risk form a development income can take.

The effect is most visible in sectors where covenant and lease length dominate value. In big box logistics, a pre-let to a strong occupier on a long, index-linked lease can move the yield materially against an identical speculative building. In data centres, a pre-let to a hyperscaler covenant on a long triple-net lease is often the difference between a fundable scheme and one that no institution will touch. The table below shows the direction of travel.

Letting position	Investor yield	Developer return required	Investor pool
Pre-let to strong covenant	Keenest	Lowest	Widest
Pre-let to weaker covenant	Softer	Higher	Narrower
Speculative, strong demand sector	Softer still	Higher	Sector dependent
Speculative, thin demand	Softest or unfundable	Highest	Limited

Pre-sale structures

A pre-sale secures a buyer for the completed asset, and combined with a pre-let it removes both letting and exit risk from a development. A pre-sale is typically documented as a forward purchase, under which the investor agrees to buy the finished building at a fixed or formula price on completion.

Where a scheme is both pre-let and pre-sold, the developer has contracted away the two biggest uncertainties in development: whether it lets and whether it sells. What remains is delivery risk, getting the building built to specification, on time and on budget, which the developer manages through a robust building contract. This combination is the most de-risked position a merchant developer can reach, and it is why pre-let, pre-sold schemes attract the keenest funding.

Speculative forward funding

Not every forward funding needs a pre-let, and in sectors with deep occupier demand many schemes are funded speculatively with letting risk priced in. An investor funding speculatively accepts that the building may let more slowly or at a different rent than assumed, and prices that risk through a softer yield, a higher developer return, or rental guarantees from the developer during a defined lease-up period.

Whether to pursue a pre-let or fund speculatively is a strategic choice that depends on the sector, the strength of occupier demand and the developer’s appetite to hold letting risk against a higher potential return. If you are structuring a scheme and want to understand how a pre-let would change its funding terms, get in touch.

Pre-let and pre-sale structures