In commercial real estate, things like 'net rent', 'gross rent', 'face rent', 'effective rent' and 'gross effective rent' get thrown around a lot in conversation.
But many tenants need help understanding the difference between these terms. And it's essential because you could be paying a vastly different amount than expected, depending on which is used.
Here's a quick breakdown.
The net rent is the base amount of rent payable. Tenants may be required to pay additional expenses called outgoings (a.k.a building costs).
The gross rent is a figure that includes outgoings, such as:
Please note: cleaning, electricity and water costs are usually charged in addition to the outgoings.
Face rent is a rental figure that disregards incentives such as rent-free periods, rent reductions (a.k.a rent abatements) and fit-out contributions. The term is used interchangeably with "asking rent." Whether this figure includes building expenses depends on whether the rent is quoted as "Gross" or "Net."
Effective rent is a rental figure that accounts for any rent-free periods and other incentives provided to you as the tenant. In short, it's the average amount you will pay each month or year when averaged out over your lease term.
Effective rent is the number you want to use when comparing options. That's because it helps you compare apples with apples when faced with properties with varying rents, incentives and outgoings to ensure you're getting a well-structured deal at a fair market price.
Gross Effective Rent is the rent payable under the lease taking all incentives into account and including all building outgoings.
For a breakdown of more terms, check out our full glossary of terms or contact one of our team members.
Tenant CS is an entrepreneurial, independent tenant representation firm. Our mission is to help businesses save time and money and get deal terms that are advantageous for them (not the landlord) through our deep-dive market analysis and lease negotiation strategies.
We cater to companies across Australia, Singapore and the greater Asia-Pacific region and have offices at the heart of the Sydney CBD, Melbourne and Singapore.
Contact us today to find out how we can help you with your next lease negotiation or relocation project.