How do you balance rent increases with tenant retention?

[Leo Li]

The goal isn’t “maximize rent”, it’s “maximize long-term return.” A vacancy costs more than most modest under-market renewals. There are three common approaches, but the best strategy blends them:

What typically works best:

- Small predictable annual increases (2–5%)

Tenants expect it, it prevents large jumps, and it keeps rent closer to market over time.

- Market realignment at turnovers

When a tenant moves out, reset to true market value.

- Context matters

- If tenant is excellent then prioritize retention with reasonable increases.

- If tenant is marginal then market reset or even strategic turnover can make sense.

- If market rents drop then sometimes holding steady prevents costly vacancy.

What I avoid:

Huge catch-up increases. They shock tenants and dramatically increase move-outs.

Bottom line:

A small annual increase + market resets at turnover generally produces the highest net return with the least friction.