About

Mispricing a commercial lease costs tenants thousands over the term. A quoted base rent of $25/ft² with 3% annual escalations, CAM charges, and operating expense pass-throughs yields a true occupancy cost far above the headline number. This calculator computes NER (Net Effective Rent) by factoring in compounding escalations via R_n = R₀ × (1 + e)ⁿ, free rent concessions, tenant improvement amortization, and additional charges across the full lease term. It assumes annual compounding on escalation and straight-line amortization of TI allowances. Results approximate and do not account for percentage rent clauses, CPI-linked adjustments, or mid-year commencement dates.

Landlords quote gross rent, modified gross, or triple-net (NNN) structures. Each shifts operating costs differently. Failing to normalize these into a single NER metric makes comparison between competing spaces unreliable. This tool generates a year-by-year schedule showing escalated rent, additional charges, concession offsets, and cumulative totals. Pro tip: always verify CAM reconciliation caps in your lease. Uncapped CAM pass-throughs can inflate year-over-year costs beyond the stated escalation rate.

Formulas

The core metric is Net Effective Rent (NER), which normalizes all costs and concessions into a single monthly figure for comparison.

NER = Total Lease Cost − Total ConcessionsT (total months)

Rent for any given year n is computed using compound escalation:

R_n = R₀ × (1 + e)ⁿ

Total Lease Cost sums all payment components across the lease term:

TLC = Y∑n=1 [R_n × A × 12] + (C_add × A × T)

Total Concessions include free rent months and tenant improvement allowance:

Concessions = (F × R₀ × A) + (TI × A)

Where: R₀ = initial base rent (/ft²/yr), e = annual escalation rate (decimal), n = year number (starting from 0), A = leasable area (ft²), T = total lease months, Y = total lease years, C_add = additional monthly charges per ft² (CAM, taxes, insurance combined), F = number of free rent months, TI = tenant improvement allowance (/ft²). Note: the model assumes escalation applies only to base rent, not to additional charges. Additional charges are held constant unless explicitly indexed.

Reference Data

Lease Type	Base Rent Includes	Tenant Pays Separately	Typical Use	Risk to Tenant
Full Service Gross (FSG)	Rent + Taxes + Insurance + CAM + Utilities	None (above base year)	Office	Low (predictable)
Modified Gross (MG)	Rent + some OpEx	Utilities, Janitorial	Office, Mixed-Use	Medium
Triple Net (NNN)	Base rent only	Taxes + Insurance + CAM	Retail, Industrial	High (variable costs)
Double Net (NN)	Base rent + structural maintenance	Taxes + Insurance	Retail	Medium-High
Single Net (N)	Base rent + Insurance + CAM	Property Taxes only	Rare	Medium
Absolute Net / Bondable	Base rent only	Everything including structural	Single-Tenant Retail	Very High
Percentage Lease	Base rent	% of gross sales above breakpoint	Retail (malls)	Variable

Escalation Type	Mechanism	Typical Range	Predictability
Fixed Annual Increase	Flat % compounded yearly	2 - 4%	High
CPI-Linked	Tied to Consumer Price Index	CPI ± cap	Medium
Step-Up (Fixed $)	Flat dollar increase per year	$0.50 - $2.00/ft²	High
Fair Market Value Reset	Reset to market rate at intervals	Every 5 - 10 years	Low
No Escalation (Flat)	Rent stays constant	0%	Very High

Additional Charge	Description	Typical Cost Range (/ft²/yr)
CAM (Common Area Maintenance)	Lobbies, parking, landscaping, cleaning	$3 - $12
Property Tax Pass-Through	Pro-rata share of real estate taxes	$2 - $8
Insurance Pass-Through	Pro-rata share of building insurance	$0.50 - $2
Utilities	Electricity, water, gas, HVAC	$2 - $6
Management Fee	Property management (% of gross rent)	3 - 6%
TI Amortization (Landlord-funded)	Spread over lease term if above allowance	Varies
Parking	Reserved or unreserved stalls	$50 - $300/stall/mo

Frequently Asked Questions

A compounding percentage escalation applies the increase to the previous year's rent, so year-over-year dollar increases grow. A 3% escalation on $25/ft² yields $25.75 in year 2 and $26.52 in year 3. A flat $0.75 step-up gives $25.75 and $26.50. Over a 10-year term on 5,000 ft², the compounding method costs approximately $4,300 more. This calculator uses compound escalation by default as it matches most market-standard lease language.

Yes. Landlord-funded TI is a concession that reduces your effective occupancy cost. However, landlords typically recover TI through higher base rent. This calculator subtracts TI from total cost to show the net benefit. If you negotiated $40/ft² TI on 3,000 ft², that is $120,000 offset against your total lease cost. Compare proposals with and without TI by adjusting this field.

This calculator applies free rent months at the beginning of the lease term (months 1 through F). During free rent, base rent is $0 but additional charges (CAM, taxes, insurance) still apply. Escalation begins counting from lease commencement regardless of free rent. So year 2 rent escalates from the original R₀, not from 0.

Escalation clauses in commercial leases typically apply only to base rent, not to CAM, tax, or insurance pass-throughs. Those additional charges fluctuate based on actual building operating costs, not a contractual percentage. By separating them, this calculator avoids over-projecting costs. If your lease does escalate all-in gross rent, set additional charges to 0 and enter the full gross rate as base rent.

Commercial security deposits typically range from 2 to 6 months of gross rent. The deposit is not a cost (it is returned minus damages), but it represents an opportunity cost of capital. A $50,000 deposit held for 10 years at 5% opportunity cost equals approximately $31,400 in lost returns. This calculator includes the deposit in the upfront cash outlay summary but does not add it to the Net Effective Rent since it is theoretically recoverable.

This version assumes full-year increments for escalation and full-month increments for the lease term. If your lease is 7 years and 4 months, enter 88 months. The final year in the schedule will show a partial year (4 months) at that year's escalated rate. Escalation steps occur every 12 months from commencement.