CRE Terms to Know: Effective Rent Calculation

Effective Rent = (total rent – free rent – cash allowances) / lease term / rentable square foot Total Rent = rent paid during the term of the lease including escalations Note: Cash allowances can include free rent, moving allowances and other cash considerations. Assumptions: <5,000-square-foot (sf) lease 36 months $25 contract rate with $0.50 annual escalations 1 month free rent (first month) Formulas Total Rent Year 1 (11 months) $25.00 x 5,000 sf x (11/12) = $114,583 Year 2 (12 months) $25.50 x 5,000 sf = $127,500 Year 3 (12 months) $26.00 x 5,000 sf = $130,000 Total Rent or Consideration $372,083 Effective Rental Rate $24.85/sf/year Learn more at https://www.naiop.org