Can I Get Finance on a Vacant Commercial Property Before There's a Tenant?

A tenant isn't just a convenience for a commercial lender, it's often the entire basis of the loan. Products built for tenanted commercial property, such as a Lease Doc loan, are assessed purely on the rent the lease produces. Take the tenant away and that basis disappears, which is why vacant commercial property is one of the harder things to finance.

Why Does a Tenant Matter So Much to the Lender?

A Lease Doc loan is assessed on the rental income the lease produces, not on your personal or business financials. Without a tenant there is no income stream for the lender to test, so the product that works smoothly for a tenanted purchase simply has nothing to assess on a vacant one.

What Is a Lease Doc Loan, and Why Doesn't It Help You Here?

As an example of how these products work, CommBank's Lease Doc loan requires an active lease between independent parties, income from a related-party tenant generally doesn't qualify, and the loan is capped at $5,000,000 with a maximum 65% LVR, a minimum 1.5x interest cover ratio, and a term of up to five years or the lease expiry, whichever is shorter. Every one of those tests assumes a lease exists. A vacant property fails the very first condition.

How Is a Vacant Property Assessed Instead?

With no rent to test, lenders fall back to a standard full-doc assessment of your own business or personal financials instead, the same kind of serviceability test used for an owner-occupier purchase. In practice this generally means a lower loan-to-value ratio than a tenanted purchase would attract, and not every lender wants to write vacant commercial stock at all, so the pool of willing lenders is smaller.

Can a Signed Lease Before Settlement Change the Outcome?

Yes. A lease signed and in place before or at settlement can move the deal from a full-doc assessment back onto a Lease Doc style basis, provided the lease is with an independent tenant and meets the lender's interest cover requirement. Securing a tenant before you settle, even a short-term one, can materially change what you can borrow.

What Should You Check Before You Commit to a Vacant Purchase?

• Confirm whether your chosen lender will finance vacant commercial stock at all; many simply won't
• Ask what LVR and serviceability test applies without a tenant, in writing, before you sign a contract
• Check whether a short settlement period gives you time to secure a lease first
• Price in a lower LVR and a bigger deposit than a tenanted equivalent would need
• Ask your broker which lenders on their panel actively write vacant commercial deals

How Do Lenders Assess Risk on a Vacant Property?

A vacant commercial property removes the one thing most commercial lenders lean on most heavily: a signed lease with a paying tenant. Without it, the lender has to form its own view of two separate risks: how long the property is likely to sit vacant, and what it could realistically lease for once it is let. Lenders typically work through this with a combination of an independent valuation that includes a market rent opinion, their own view of vacancy trends in that location and property type, and sometimes a letting agent's or valuer's commentary on expected time-to-lease.

Because that assessment carries more judgement and more room for things to go wrong than lending against an already-tenanted property, lenders compensate in a few predictable ways: a lower maximum LVR than they'd offer on the same property fully leased, a shorter interest-only period (if any is offered at all) before principal-and-interest repayments kick in, and in some cases a request for the borrower to demonstrate they can service the full loan from other income or cash reserves, independent of the property ever finding a tenant. Property type matters too: a vacant retail shop in a strip with high foot traffic is viewed differently from a vacant, purpose-built industrial shed in an area with limited alternative uses, because the second is harder to re-let to a different type of tenant if the original target market doesn't materialise.

What Documentation Will the Lender Want?

Expect the documentation list to be longer than for a tenanted purchase, because the lender is building its own case for the property's letting prospects rather than relying on an existing lease. Common requirements include a full valuation with a market rent assessment (not just a sale price opinion), evidence of the borrower's capacity to cover repayments independent of rental income for an agreed buffer period, often expressed as months of interest cover held in reserve, a marketing or leasing plan if you intend to actively lease the space (sometimes including a signed agency agreement with a commercial leasing agent), and your own financials if the loan is being assessed partly against your business or personal income rather than the property alone.

Some lenders will also ask for comparable leasing evidence: recent lease deals on similar properties nearby, to support that the market rent assumption in the valuation is realistic rather than optimistic. If you already have a prospective tenant lined up but haven't signed a lease yet, a heads of agreement or letter of intent, while not binding, can sometimes help the lender's assessment, though most will still want to see it convert to a signed lease before releasing the most favourable terms.

What If You Can't Find a Tenant Within the Interest-Only Period?

This is the scenario most lenders are implicitly pricing for when they set shorter interest-only terms and lower LVRs on vacant property deals, so it's worth planning your fallback before you need it rather than after. If the interest-only period ends and the property is still untenanted, you generally have a few options, and it pays to raise this with your lender well before the deadline rather than at the last minute: request an extension of the interest-only period (lenders will usually want updated evidence of your leasing efforts and marketing activity to support this), move to principal-and-interest repayments funded from your own cash flow rather than rental income, refinance to a lender with different risk appetite or terms, or, in a harder scenario, consider a price reduction on the lease to secure a tenant faster even if it's below your original rent expectation, since holding costs on an unleased commercial property (loan interest, outgoings, land tax where applicable, insurance) accumulate every month it sits empty.

Building a cash buffer specifically for this scenario before settlement, rather than assuming the property will lease quickly, is one of the more common pieces of advice from brokers and accountants who've seen vacant purchases go longer than expected.

Does the Type of Property Change the Risk Lenders See?

Yes, materially. Office space in a market with high vacancy rates and a trend toward hybrid working is currently viewed more cautiously by many lenders than industrial or logistics space, which has generally seen stronger demand and tighter vacancy in most Australian capital cities in recent years. Retail is its own category again, with lenders distinguishing between a well-located strip shop with multiple potential uses and a large-format or specialised retail space that's harder to re-tenant if the original use doesn't work out.

Specialised-use properties generally, such as a fit-out built for a specific medical, hospitality or manufacturing use, carry a particular risk: the fit-out that makes the property valuable to one type of tenant can make it harder (and more expensive) to re-let to a different type of business if the first tenancy doesn't eventuate, since a new tenant may need to strip out the existing fit-out before they can use the space. If you're weighing up two vacant properties on similar numbers, it's worth asking your broker or the valuer directly how they'd expect each one to perform if it sat vacant for twelve months rather than three, because that's a more realistic stress test than assuming the best case. For buyers already considering a tenanted purchase as an alternative, our commercial finance page sets out how the assessment differs once a lease is already in place.

Should You Buy Vacant or Wait Until It's Leased?

This is less a finance question than a strategic one, but it has real finance consequences worth weighing together. Buying vacant, if you can secure acceptable terms, generally means a lower purchase price (vendors selling an untenanted property often price in a discount for the buyer's leasing risk) and full control over who you lease to and on what terms, which matters if you have specific tenant criteria or plan to occupy part of the space yourself eventually. The trade-off is the financing friction already covered: lower LVR, shorter interest-only periods, and the holding cost risk if leasing takes longer than expected.

Waiting until the property is tenanted, or negotiating to settle only once a lease is signed (sometimes structured as a delayed or conditional settlement), shifts the leasing risk back onto the vendor and generally gets you standard investment lending terms from day one, but usually at a higher purchase price, since the vendor has done the work of de-risking the asset before selling it. Which approach suits you depends on your own risk appetite, how much cash buffer you have for a vacancy period, and whether you have existing relationships or market knowledge that give you a genuine edge in finding a tenant faster than an average buyer would.

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