Lease negotiation

The subject is the rent, not the sale price. The appraiser analyzes rental rates for comparable properties, adjusting for location, condition, build-out, term length, escalations, and concessions to arrive at a supportable market rent for the specific space.

Lease terms are part of the analysis. Free rent periods, tenant improvement allowances, expense structures (gross versus net), and percentage rent provisions all affect the effective rate, and the appraiser normalizes for them so comparisons are apples to apples.

Property type drives the factors. Retail rent turns on foot traffic, co-tenancy, and anchor tenants. Office rent turns on building class, amenities, and parking. Industrial rent turns on clear height, loading, and access. The analysis is tailored accordingly.

Contract rent is what the lease says. Market rent is what the space would command today in an open, competitive market. Over the life of a lease these numbers drift apart, and the gap between them is money one party is leaving on the table.

For landlords, below-market contract rent suppresses both cash flow and property value, since income-producing properties are valued from their income. For tenants, above-market rent is a recurring overpayment that compounds with every escalation.

Renewals, resets, and rent review clauses are where the gap gets corrected. An independent market rent study establishes the current number with documented evidence, giving whichever party ordered it the strongest possible position in the negotiation.