What are typical retail operating expenses and how do NNN leases protect the landlord?

Operating expenses in retail vary significantly by lease structure, property type, and vintage. Absolute NNN leases — the gold standard for investor-controlled NOI — pass all operating expenses to the tenant: property tax, insurance, maintenance, and all capital expenditures including roof and structure. The landlord’s obligation is limited to collecting rent and maintaining title insurance and ownership. This structure produces NOI that is essentially equal to gross revenue (less management and accounting costs, typically $0.10–$0.25/SF). Modified NNN or double-net leases keep the landlord responsible for roof and structure — a $0.15–$0.30/SF annual reserve cost in steady state. Gross or modified gross retail leases put the landlord responsible for all operating costs, which in Orlando retail run $6–$10/SF annually for taxes, insurance, maintenance, and management combined. For investors underwriting at cap rates based on stated NOI, the first question is always: is this NOI gross or NNN? A 7.0% cap rate on NNN NOI is materially different from a 7.0% cap rate on gross NOI — the effective NNN NOI cap rate of the gross-lease property is typically 250–400 bps lower than stated when expenses are properly netted.