When two or three proposals arrive for a new space, the first instinct is to compare the asking rents. That is a reasonable starting point and a poor finishing point. Base rent is one line in a lease that also sets how rent grows, who pays the building's operating costs, how much area you are charged for, how many months are free and how much the landlord contributes to the build-out. Change any of those and the real cost of the space moves, sometimes by more than the difference in rent.
Why the headline number misleads
The goal is simple to state: reduce each offer to what it will actually cost your business to occupy the space over the full term, then compare those totals on the same basis. Getting there takes some discipline, because landlords quote rent in different ways and markets have different conventions. The sections below walk through each variable and finish with a method for putting offers side by side.
Base rent, effective rent and escalations
Base rent is the contractual rent per rentable square foot, usually quoted per year in most markets and sometimes per month in others. Effective rent is what you pay on average once concessions and escalations are taken into account. It answers the question: across the whole term, what does this space really cost per square foot per year?
Suppose offer A quotes a lower starting rent with no free rent and a modest allowance, while offer B quotes a higher starting rent with several months free and a larger allowance. On paper A looks cheaper. Once you spread B's free months and extra allowance across the term, B's effective rent may come out lower. The cheapest rent per square foot is often not the cheapest space.
Many tenants and their advisors also calculate a net present value of the rent stream, discounting future payments at the company's cost of capital. This rewards concessions that arrive early, such as free rent at the start of the term, and penalizes costs that arrive early, such as a large upfront contribution to construction. For a short term the difference is small; for a ten-year lease it can decide the comparison.
Rent rarely stays flat. Most leases include annual escalations, set as a fixed percentage, a fixed dollar amount per square foot or an index-based adjustment. A small difference in the escalation rate compounds over a long term, so an offer with a lower starting rent and a higher escalator can end up costing more by the final years.
Term interacts with everything else. Landlords typically offer more generous concessions for longer terms, because the cost of free rent and improvements is recovered over more years. That can make a longer term look cheaper per year, but it also commits you for longer. Compare offers at the same term where you can, and if the terms differ, look at both the annual effective cost and the total commitment.
The cheapest rent per square foot is often not the cheapest space.
Operating expenses, free rent and allowances
Operating expenses are where offers are most often mismatched. A full service gross office quote includes the building's operating expenses at a base year, and you pay your share of increases after that. A triple net quote excludes them: you pay base rent plus your share of property taxes, insurance and common-area maintenance from the first day. A modified gross quote sits in between, and the split varies by building.
To compare a gross quote with a net quote, add the estimated operating expenses to the net rent, or subtract them from the gross rent, so both are expressed the same way. Ask each landlord for the current year's estimate and the last few years of actual expenses. Then look at what is included: whether management fees, capital repairs and utilities are passed through, whether controllable expenses are capped, and whether the base year is set at a normal level of occupancy. A low estimate today is less useful than a clear, predictable structure.
Free rent, sometimes called abatement, is the simplest concession to value: it is rent you do not pay. Check whether it covers base rent only or operating expenses as well, and when it falls. Free months at the start help cash flow while you build out and move; free months spread through the term are worth slightly less in present-value terms.
The tenant improvement allowance is the landlord's contribution toward construction. Compare it against a realistic budget for the build-out you need, not against the other offer's allowance. A large allowance in a space that needs extensive work may leave you paying more out of pocket than a smaller allowance in a space that is already close to your layout. Ask whether unused allowance can be applied to rent, furniture, cabling or moving costs, and whether the landlord charges a construction management fee.
Load factor and how space is measured
Rent is charged on rentable square feet, which is your usable area plus a share of the building's common areas such as lobbies, corridors and restrooms. The ratio between the two is the load factor. Two suites with the same usable area can carry different rentable areas, and so different rents, simply because their buildings are measured differently.
Always compare offers on the rent per usable square foot as well as per rentable square foot. A space with a slightly higher rent and a lower load factor can cost less for the same working area. Ask each landlord which measurement standard the building uses and request the measured areas in writing.
Putting offers side by side
Once each variable is understood, build a simple model that applies the same assumptions to every offer. We recommend a spreadsheet with one column per offer and one row per year of the term, and these steps:
- Convert every quote to the same basis: the same lease structure, the same measurement, the same term where possible.
- Lay out base rent by year, applying each offer's escalations.
- Add estimated operating expenses, with a reasonable growth assumption, and subtract any free rent.
- Add your out-of-pocket build-out cost: the realistic budget minus the allowance.
- Add one-time costs such as moving, cabling, furniture and any parking charges.
- Total the cost over the term, divide by the usable area and the number of years, and discount the stream to a present value.
- Compare the totals, then weigh what the numbers cannot capture: location, building quality, flexibility and timing.
Next steps
If you are weighing options and want our spaces presented in a form you can drop straight into your model, send your requirement through the inquiry form or call +1 (307) 309-3800. We set out specifications and terms side by side so the comparison is straightforward.
General information for businesses considering commercial space, not legal, tax or financial advice. Every lease is different; your lease's own terms govern.
