effective rent
What is effective rent in a commercial lease?
What is effective rent in a commercial lease?
Effective rent is one yearly lease number after credits and extras. It is not the sticker on the first page of the offer.
This page belongs to a validation / pilot concept. It is not generally available. Payment is not collected.
Questions this page also answers
What does this page answer?
Effective rent is one yearly lease number after credits and extras. It is not the sticker on the first page of the offer.
What should sit beside it?
The nearby owner page and one worked walk.
What is not answered here?
A legal read and a location vote.
What is the next step?
Open the related compare or model page and keep the same rate.
Plain-language definition
Face rent is the posted rate.
Effective rent folds free months and build-out money into one yearly figure.
Some teams also discount the cash first. Say which method you used.
Landlords read it as net income. Tenants read it as yearly cost.
The word is shared. The recipe must be written.
This page sits under Effective rent.
Need the next step? Open How to calculate effective rent.
See Effective rent vs face rent when you want the nearby walk.
Open Effective rent vs NPV if this page is not the last step.
Investopedia defines net present value as later cash brought back to today. See Investopedia on NPV.
Why it matters
Clients compare stickers and miss concessions.
A single yearly number is easy to quote.
It is not a replacement for NPV when cash is lumpy.
Definition pages are searched separately from formula pages.
How it works
- Write the cash list.
- Subtract credits in the right year.
- Add extras if the tenant pays them.
- Spread or discount by the method you named.
- Quote one yearly figure and the method.
Formula in words. Simple effective rent = (rent + extras − credits) ÷ years.
| Input | Meaning |
|---|---|
| Start rent | First-year rent before extras |
| Extras | CAM, tax, or insurance the tenant still pays |
| Credits | Free rent or build-out money |
| Term | How many years the cash list runs |
| Discount rate | How hard later cash is shrunk |
Worked example
Here is a teaching sample. It is not customer data and not a result from a live client.
| Metric | Path A | Path B |
|---|---|---|
| Start rent | $38,000 | $35,340 |
| Year-1 extras | $7,000 | $7,490 |
| Year-1 credit | $19,000 | $10,450 |
| Sample NPV | $322,162 | $313,695 |
| Year | Rent | Extras | Credit | Cash out | Value today |
|---|---|---|---|---|---|
| Year 1 | $38,000 | $7,000 | $19,000 | $26,000 | $24,074 |
| Year 2 | $39,140 | $7,210 | $0 | $46,350 | $39,738 |
| Year 3 | $40,314 | $7,426 | $0 | $47,740 | $37,898 |
| Year 4 | $41,524 | $7,649 | $0 | $49,173 | $36,144 |
| Year 5 | $42,769 | $7,879 | $0 | $50,648 | $34,470 |
| Year 6 | $44,052 | $8,115 | $0 | $52,167 | $32,874 |
| Year 7 | $45,374 | $8,358 | $0 | $53,732 | $31,352 |
| Year 8 | $46,735 | $8,609 | $0 | $55,344 | $29,901 |
| Year 9 | $48,137 | $8,867 | $0 | $57,004 | $28,516 |
| Year 10 | $49,581 | $9,133 | $0 | $58,714 | $27,196 |
| Sample NPV | — | — | — | — | $322,162 |
Sample NPV for Effective-rent definition sample is about $322,162. A second path lands near $313,695.
Year 1 of Effective-rent definition sample has rent of $38,000.
Shared building cost is $7,000.
A credit of $19,000 lowers the cash you pay that year.
Cash out this year is about $26,000. Year one carries the Effective-rent definition sample credit.
Later cash gets a shrink for time. At 8 percent, year 1 is worth about $24,074 today.
Next, year 2 rent is $39,140.
Assumptions
- The Effective-rent definition sample uses one visible 8 percent rate.
- Credits hit in year one unless the page says otherwise.
- Both options share the same extra basis.
- No percentage rent sits in this teaching walk.
Edge cases
A mid-year start needs a stub period, not a fake full year.
A credit that pays later must move to that later year.
A cap on extras changes the later risk, not the first sticker.
Common mistakes
- Calling face rent effective rent.
- Leaving extras off a net deal.
- Mixing simple average and NPV-adjusted methods.
- Hiding the term length.
Decision implications
Effective rent is one yearly lease number after credits and extras. It is not the sticker on the first page of the offer.
If the gap is thin, show a second rate before anyone picks.
If one path wins only from a mistimed credit, rebuild the list.
This page answers one question. Nearby pages cover the next step.
See How to calculate effective rent when you need that next step. Open Effective rent vs face rent for the nearby walk. Use Effective rent vs NPV if you want a second path.
Limits
- The number does not score daylight, transit, or floor plate.
- The number does not replace a legal read.
- Do not let one metric pick a space the team cannot use.
- Do not use this page as a clone of a nearby question.
U.S. BLS describes how brokers advise clients on property deals. See BLS broker occupation data.
Next step
This site is a validation / pilot concept. It is not generally available. Payment is not collected.
Ready for a bounded next step? Request Pilot Access or see how it works and compare commercial leases.
Effective rent vs NPV: what is the difference? · How do you calculate effective rent? · What is the difference between effective rent and face rent? · What is effective rent per square foot? · What are common effective rent mistakes? · What is blended rent versus effective rent? · What is the difference between effective rent and asking rent? · Does effective rent work the same on gross and net leases?
Trusted sources
These are public references. They are not endorsements and not client results.