Glossary / Space and measurement
Also known as: NER, effective rent
The average rent a landlord actually realizes over the full lease term after subtracting concessions such as free rent and tenant improvement allowances. It shows the real economics of a deal behind the headline (face) rent.
Cove defines net effective rent as the average rent a landlord actually realizes over the full lease term after subtracting concessions like free rent and tenant improvement allowances. Face rent is the headline rate in the lease; net effective rent shows what the deal is worth after the giveaways.
CommLoan gives the basic formula as total gross rent minus concessions, divided by the number of periods. Cove lists free rent, tenant improvement allowances, leasing commissions, moving credits, and discounted early-term rent among the concessions that can be included, and notes that a widening gap between face and effective rent can signal weakening demand.
Your commission may be calculated on face rent, on rent actually paid, or with free-rent months excluded. Which one applies depends on your Commission agreement. In a market with heavy concessions, the difference between those bases can be large, so it is worth settling before you start negotiating the deal.
Concessions also affect timing. Free rent at the start of a lease delays when the landlord receives cash, and if commission installments are tied to rent commencement, that delay can reach your payment too.
Before a deal is priced, confirm whether your commission is based on face rent or on rent net of concessions.
For example, on a hypothetical 10-year lease of 10,000 RSF at $40 per RSF per year with 12 months of free rent, face rent totals $4,000,000. The tenant pays rent for 9 years, or $3,600,000. Spread over 10 years and 10,000 RSF, that is $36 per RSF per year. Subtracting a hypothetical $500,000 TI allowance leaves $3,100,000, or $31 per RSF per year.
