occupancy costs
Why can the lowest rent option have a higher occupancy cost?
Why can the lowest rent option have a higher occupancy cost?
The cheapest sticker can hide uncapped CAM, tax, insurance, or weaker credits. The stack tells the truth.
This page belongs to a validation / pilot concept. It is not generally available. Payment is not collected.
Questions this page also answers
What is the short answer?
The cheapest sticker can hide uncapped CAM, tax, insurance, or weaker credits. The stack tells the truth.
What should you change first?
Change this page's input and hold the rate still.
What must stay visible?
The rate, the extras, and the year the credit lands.
What should you open next?
Open What hidden occupancy costs do tenants miss and keep the same stack.
Plain-language definition
The cheapest sticker can hide uncapped CAM, tax, insurance, or weaker credits. The stack tells the truth.
Start with cash you can date. Leave slogans off the sheet.
Add extras the tenant still pays.
Keep one visible rate so a later reader can check the work.
Name the method in plain words.
This page sits under Occupancy costs.
Need the next step? Open What hidden occupancy costs do tenants miss.
See How do CAM caps change occupancy-cost risk when you want the nearby walk.
Open What is the difference between base rent and occupancy cost 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
This question still needs a dated cash walk: Why can the lowest rent option have a higher occupancy cost?
A short recap cannot carry a year-by-year example.
The rank can flip when this input moves.
A finance lead will ask which line changed the number.
How it works
- Put the numbers on one year list with rent.
- Hold the other assumptions still.
- Use one named method to shrink or spread the cash.
- Show a second path so the gap is visible.
- Keep the rate on the same page as the pick.
Formula in words. Cheap-rent trap uses one shared rate and one dated list.
| 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 | $22,000 | $20,460 |
| Year-1 extras | $21,000 | $22,470 |
| Year-1 credit | $1,000 | $550 |
| Sample NPV | $323,729 | $323,618 |
| Year | Rent | Extras | Credit | Cash out | Value today |
|---|---|---|---|---|---|
| Year 1 | $22,000 | $21,000 | $1,000 | $42,000 | $38,889 |
| Year 2 | $22,660 | $21,630 | $0 | $44,290 | $37,972 |
| Year 3 | $23,340 | $22,279 | $0 | $45,619 | $36,214 |
| Year 4 | $24,040 | $22,947 | $0 | $46,987 | $34,537 |
| Year 5 | $24,761 | $23,636 | $0 | $48,397 | $32,938 |
| Year 6 | $25,504 | $24,345 | $0 | $49,849 | $31,413 |
| Year 7 | $26,269 | $25,075 | $0 | $51,344 | $29,959 |
| Year 8 | $27,057 | $25,827 | $0 | $52,884 | $28,572 |
| Year 9 | $27,869 | $26,602 | $0 | $54,471 | $27,249 |
| Year 10 | $28,705 | $27,400 | $0 | $56,105 | $25,987 |
| Sample NPV | — | — | — | — | $323,729 |
Sample NPV for Cheap-rent trap sample is about $323,729. A second path lands near $323,618.
Year 1 of Cheap-rent trap sample has rent of $22,000.
Shared building cost is $21,000.
A credit of $1,000 lowers the cash you pay that year.
Cash out this year is about $42,000. Year one carries the Cheap-rent trap sample credit.
Later cash gets a shrink for time. At 8 percent, year 1 is worth about $38,889 today.
Next, year 2 rent is $22,660.
Assumptions
- The Cheap-rent trap 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
- Copying a nearby page and only changing the title.
- Hiding the rate.
- Dropping extras on a net path.
- Calling the teaching sample a live client result.
Decision implications
The cheapest sticker can hide uncapped CAM, tax, insurance, or weaker credits. The stack tells the truth.
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 What hidden occupancy costs do tenants miss when you need that next step. Open How do CAM caps change occupancy-cost risk for the nearby walk. Use What is the difference between base rent and occupancy cost 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.
What is total occupancy cost in a commercial lease? · What is CAM in a commercial lease? · What hidden occupancy costs do tenants miss? · What is occupancy cost per square foot? · How do property taxes change occupancy cost? · How does insurance change occupancy cost? · What is the difference between base rent and occupancy cost? · How do you compare occupancy cost on a gross lease and a net lease?
Trusted sources
These are public references. They are not endorsements and not client results.