effective rental rate

effective rental rate

True rent, after taking into account rent concessions; usually expressed as a dollar amount per square foot.Some parts of the country quote rents as dollars per foot per month; others use dollars per foot per year.

Example: If 5,000 square feet of office space normally rents for $20 per foot per year, but the landlord gives 6 months' free rent on a 5-year lease, then the effective rental rate is calculated as follows:

5,000 feet $20 per foot $100,000 per year

6 months free rent $0

4.5 years paid rent @ $100,000 per year $450,000

$450,000 paid rent spread over a 5-year term $90,000 per year effective rent

$90,000 effective rent 5,000 feet $18 per foot effective rental rate