How the Net Effective Rent Calculator works
Landlords often quote a "face" or "asking" rent per square foot, then sweeten a deal with free rent months and a tenant improvement (TI) allowance to help cover build-out costs. Net effective rent (NER) strips out those concessions and spreads their value evenly across the full lease term, so you can compare offers with different concession packages on equal footing.
The formula
For a base rent R ($/SF/year), a rentable area S (square feet), a lease term of n months, f free-rent months, and a tenant improvement allowance T ($/SF):
Net effective rent = [(R × S ÷ 12 × n) − (R × S ÷ 12 × f) − (T × S)] ÷ n
This gives the average net effective rent per month. Multiplying by 12 and dividing by the square footage converts that figure back to a $/SF/year rate directly comparable to the quoted face rent. The calculator assumes a flat base rent with no annual escalations and treats the TI allowance as a one-time, upfront concession rather than a rent credit spread over time.
Worked example
Take a 5,000 SF space quoted at $30/SF/year on a 60-month (5-year) lease, with 3 months free and a $10/SF TI allowance. Gross monthly rent is $30 × 5,000 ÷ 12 = $12,500. Over 60 months that totals $750,000 in gross rent. Free rent is worth $12,500 × 3 = $37,500, and the TI allowance is worth $10 × 5,000 = $50,000, for total concessions of $87,500. Net rent paid is $750,000 − $87,500 = $662,500, or about $11,041.67 per month — equivalent to roughly $26.50/SF/year, an 11.7% discount off the $30 face rent.
What moves net effective rent most
- Lease term: the same free-rent and TI concessions matter less on a longer term because they are spread over more months — a short-term lease shows a bigger discount from the same dollar concessions.
- Free rent months: each free month removes one month of gross rent from the total, directly lowering the effective rate.
- TI allowance: a larger allowance reduces net rent by the same dollar amount regardless of when the space is occupied, since it is treated as a lump-sum concession.
What this calculator does not do
This tool does not model rent escalations, operating expense pass-throughs (CAM, taxes, insurance), free rent applied to only part of the space, or the time value of money (discounting concessions received later at less than face value). Commercial lease negotiations often involve all of these; use this calculator as a straightforward starting comparison, not a final underwriting number.