Free tool · no sign-up
Net effective rent calculator
Compare commercial lease offers on one number. Enter the area, term and rent steps, then the concessions (free rent, tenant improvement allowance, leasing commission) and see the face rent, the net effective rent per square foot per year and, with a discount rate, the present-value NER. Works in Canadian or US dollars; nothing leaves your browser.
Results
- Average face net rent
- $18.60 / sq ft / yr
- Face net rent over the term
- $930,000
- Free rent
- − $45,000
- TI allowance
- − $100,000
- Leasing commission
- − $46,500
- Net effective rent over the term
- $738,500
- Net effective rent (NER)
- $14.77 / sq ft / yr
- PV NER at 6.00%
- $14.13 / sq ft / yr
Works in Canadian or US dollars: enter every amount in the same currency. Calculated in your browser; nothing is sent or saved.
How it’s calculated
- Face net rent
Total net rent over the term = Σ (annual net rent $/sq ft × area ÷ 12) for each month - Net effective rent
NER = (face net rent − free rent − TI allowance − leasing commission) ÷ area ÷ term in years - Present-value NER
PV NER = the level annual $/sq ft whose monthly payments have the same present value as the actual rent less concessions
Worked example (illustrative numbers)
- A tenant offers to lease 10,000 sq ft for 5 years: net rent of $18.00 per sq ft in years 1–3 and $19.50 in years 4–5.
- Face net rent over the term is $930,000, an average of $18.60 per sq ft per year.
- Concessions: 3 months of free net rent ($45,000), a TI allowance of $10.00 per sq ft ($100,000) and a 5% leasing commission on face net rent ($46,500).
- Net effective rent is $738,500 over the term, or $14.77 per sq ft per year. Discounted at 6% a year, the PV NER is about $14.13 per sq ft per year.
Illustrative figures only; they are not market rents or typical concessions for any location.
Why face rent is not enough
Two offers with the same headline rent can be worth very different amounts to a landlord. One may include several months of free rent and a generous tenant improvement (TI) allowance; the other may have higher steps later in the term. Net effective rent spreads the concessions over the term so offers with different structures can be compared on one figure per square foot per year.
Tenants use the same arithmetic in reverse: a lower effective rent means a cheaper deal over the term, even if the face rate is higher than a competing building's.
Simple NER and present-value NER
Simple NER treats a dollar in year five the same as a dollar today. It is quick and transparent, and it is the version most often quoted in leasing reports. Present-value NER discounts each month's rent at a rate you choose and counts the concessions at signing, which rewards offers that pay more early and penalises large up-front costs. When the discount rate is reasonable for the landlord's cost of capital, PV NER is the fairer comparison for long terms or large concessions.
Conventions differ between landlords and markets: some exclude commissions, some count free gross rent (including additional rent) rather than free net rent, and some use annual rather than monthly discounting. Say which conventions you used whenever you quote an NER.
Presenting lease offers and NER
When you summarise offers for a landlord, show each offer's area, term, rent steps, free rent (net or gross), TI allowance, commission and any other inducements next to the calculated NER, and label the NER as calculated with its formula. Keep the original offer documents as the source of truth; the summary is a comparison aid.
In OfferingStack, lease offers received through a listing's deal room can be compared side by side with the same calculation, labelled as calculated, with the conventions shown under the table.
Estimates for marketing and comparing offers only. This is not an appraisal, and not legal, tax or accounting advice; the lease and your advisers govern the actual economics.
Questions
What is net effective rent?
The average net rent per square foot per year that a landlord actually receives after deducting concessions such as free rent, a tenant improvement allowance and leasing commissions, spread over the lease term.
How do you calculate net effective rent?
Add up the net rent over the term, subtract the free rent, the TI allowance and the leasing commission, then divide by the area and by the term in years. In the example above, $738,500 ÷ 10,000 sq ft ÷ 5 years = $14.77 per sq ft per year.
Should free rent include additional rent (TMI or CAM)?
It depends on the offer. If the tenant gets free gross rent, the landlord also waives additional rent for those months, which costs more. Choose the gross option in the calculator and enter the additional rent per square foot to include it.
What discount rate should I use for PV NER?
One that reflects the landlord's cost of capital or required return. Use the same rate for every offer you compare; the ranking matters more than the exact figure.
Is my data saved?
No. The calculation runs in your browser and nothing you type is sent to OfferingStack.
Related
Put the numbers in a finished offering memorandum.
Upload your fact sheet or rent roll, add the NOI and price, and review a watermarked preview of the financial and pricing pages before you buy anything.