Net Effective Rent (NER) refers to the actual rent paid by a tenant after considering concessions, incentives, or other lease terms.
Net Effective Rent is calculated by Starting Rent with Escalations minus TI and Free Rent, divided by Lease Term (no discount rates are applied). See below for additional context and see which markets exclude TI / Work Value.
| Step 1 | Get total rent, not taking concessions into account |
| Formula | ((Starting Rent*Square Footage*Time Period(months))/12)+(Escalated Rent*Square Footage)*Time Period(months))/12)…etc… |
| Step 2 | Subtract Concessions from total rent |
| Formula | Total Rental Amount (from above) - ((Tenant Improvement Amount*Square Footage)+((Free Rent(months)*Square Footage*Starting Rent)/12)) |
| Step 3 | Divide total rent by total Lease Term*Square Footage |
| Formula | (Rental Amount Minus Concessions (from above))/(Total Lease Term*Square Footage) |
Complete Formula
| (((Starting Rent*Square Footage*Time Period(months))/12)+((Escalated Rent*Square Footage)*Time Period(months))/12)-((Tenant Improvement Amount*Square Footage)+((Free Rent(months)*Square Footage*Starting Rent)/12))/(Total Lease Term*Square Footage) |
Example Below
| Transaction Size: 28918 | Effective Rent Calculation: 75.98387097 |
| Free Rent (in months): 11 | Tenant Improvements: 65 |
| Starting Rent: $87 | Rent Schedule: $0/11m,$87/5y,$94/4y5m |
| Escalated Rent: $94 | Time Period (in months): 71 |
| Effective Rent Calculation: 75.98387097 | Time Period (in months): 53 |
Note: There are cases in which certain markets do not include Tenant Improvement Allowance (TI) or Work Value in their effective rent calculation.
The following markets do not include TI in the effective rent calculation:
- San Francisco
- Bay Area
- Sacramento - Central Valley
- Dallas - Fort Worth
- Atlanta
- Houston
- San Diego
- Phoenix
- Austin
- San Antonio