Properties and Leases · REITs

Residential, office and retail landlords sell different kinds of space to different customers. Lease economics and local supply explain more than a broad real estate label.

Residential demand is local

Apartment income depends on occupied homes, effective rents and operating costs. Household formation and employment matter, but so do nearby completions, affordability and incentives. A quoted asking rent can rise while effective rent falls if the landlord offers free months. Compare renewal rents, new resident rents and concessions on a consistent basis.

Office leases can delay the evidence

A long office lease can preserve contracted rent while market demand weakens. The challenge may become visible only when a tenant leaves or renews. Investigate expiry dates, tenant improvements, leasing commissions and downtime. A full building today is not proof that the same rent can be earned after the current contracts expire.

Retail quality is more than foot traffic

Shopping centers, malls and individual retail properties can have different tenant mixes and lease arrangements. Review tenant sales where disclosed, rent affordability, occupancy costs and exposure to a few major operators. Replacing a large tenant can affect neighboring stores as well as the vacant unit. Separate contractual rent from variable rent linked to sales.

Compare a renewal on cash terms

Suppose an office receives $1 million of annual rent under a new five year lease but requires $1.5 million of improvements and commissions upfront. Spreading that outlay evenly implies $300,000 a year before financing and other adjustments. The headline rent alone overstates the economics available to shareholders. Use actual timing in a fuller valuation model.

Try it yourself

An apartment has monthly asking rent of $2,000 with one free month on a twelve month lease. What is the average monthly rent before other charges?

Show the worked answer

Eleven payments of $2,000 total $22,000. Dividing by twelve gives approximately $1,833. Compare effective rent with effective rent, not with a different property's headline asking rent.

Further reading

Educational material, not a recommendation to transact. All numerical examples are hypothetical and exclude costs unless stated. Actual terms, eligibility, tax treatment and broker procedures depend on the security and jurisdiction.

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