Effective rent is a term used in the field of commercial real estate to denote the actual amount of rent that a tenant pays when all incentives, discounts, and other financial benefits provided by the landlord are taken into account.
Effective rent often differs from the nominal rent stated in the lease agreement. This is because landlords often offer various incentives, such as rent-free periods (times when the tenant does not have to pay rent), contributions to space fit-outs, or rent discounts.
The calculation of effective rent takes into account these incentives and provides a more realistic picture of how much a tenant actually pays to lease space over the entire duration of the lease agreement.
Effective rent is an important indicator for tenants when comparing different leasing options, but also for landlords and investors when assessing the profitability of a property.
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