What yearly percentage increase...

Question

Hello, I was wondering what yearly percentage increase you guys use on leases. This is now on commercial property. I'm currently using anything from 3%-5%. I feel 3% is waaay to low, but those tenants are locked down now (for the next 3 years).

If one use the current inflation rate, say 3%, that may not keep up with property values, taxes and demands.

Thoughs?

If one use the current inflation rate, say 3%, that may not keep up with property values, taxes and demands.

Thoughs?

Cal Coetzee · Answer

Thanks Rob, I have both at the moment. Gross and triple net. Thanks for your input.

Rob Beland · Answer

In MA with commercial leases often times we tie the increase to the Consumer Price Index (CPI). Alternatively we typically see about a 3% per year increase per year on a five year lease. If it's a long term lease of say 10 years then we may fix rent for a few, go up 5%, fix for a few, go up another 5% or maybe just do 2% per year. Nothing is standard and it really depends on the deal. Some tenants may want a discounted rate in the beginning while getting a business ramped up so there may be a large increase after the first or second year. It's not uncommon for rent to be fixed for 5 years either.  As far as expenses go, you really need to stay on top of increases and profit. You need to make sure you aren't just increasing rent to cover the expenses but rather cover expenses and make a profit. Are you talking about a gross lease or a triple net lease?