What to carry into the decision
- Compare the same area basis, time period, discount rate and cost categories.
- Separate economic rank from property fit so a cheap but unusable space does not win by accident.
- Test the uncertain inputs instead of hiding them inside one best-case assumption.
- Translate the cost gap into negotiable equivalents such as rent, TI or free-rent months.
Create a clean term sheet for every option
Begin with the source proposal, not an email summary. Capture the premises area, commencement, term, base-rent schedule, additional rent estimate, parking, inducements, tenant capital and any timing assumptions. Mark each value as source-derived, user-entered or unknown. If an area or cost is unclear, record the question beside the model.
Do not force structurally different proposals into identical labels too early. A gross rent and a net rent can still be compared, but first identify what each includes. The goal is comparable economic categories, not identical wording.
Read the comparison in layers
Total lease obligation answers how much recurring occupancy cost is scheduled over the term. Economic cost adjusts that obligation for entered incentives and tenant-funded capital. Present value recognizes that payments at different times are not economically identical. Effective rent converts the result to a rate per square foot, while average monthly cost helps with budgeting.
Keep capital exposure beside the rent metrics. A proposal can have attractive effective rent and still demand more upfront cash than the business can fund. Similarly, the lowest total cost may not provide the best operational fit or the most flexibility.
| Metric | Question it answers | Common mistake |
|---|---|---|
| Total obligation | What recurring occupancy payments are scheduled? | Treating inducements as if they reduce contract rent |
| Economic cost | What remains after entered incentives and tenant capital? | Omitting move and buildout costs |
| Present value | What is the time-adjusted cost? | Using different discount rates between options |
| Effective rent | What is the normalized cost per square foot? | Comparing different area definitions |
| Tenant capital | How much cash must the tenant fund? | Assuming the TI allowance covers the entire project |
Keep building function outside the rent model — then combine it deliberately
Location, loading, clear height, power, visibility, parking, layout, zoning, expansion capacity and lease flexibility do not belong inside a rent calculation unless the decision team explicitly assigns them a value. Track those criteria in a Tourbook and rate them separately.
A weighted ranking can help organize the decision, but disclose the weights and missing data. Missing ratings should not create an advantage. A preferred option should be explainable as both an economic result and an operational judgment.
- Define must-have criteria before tours begin.
- Record observations at the property, not days later from memory.
- Distinguish verified building facts from listing claims and user observations.
- Retain declined options and the reason for rejection in the project record where appropriate.
Convert the cost difference into a useful counter scenario
Once the gap is known, solve one term at a time. Ask what starting rent, TI allowance or free-rent period would bring the higher-cost proposal to the target economics, holding the other terms constant. This does not predict acceptance; it makes the trade-off measurable.
Preserve the landlord proposal as the baseline and save each counter as a separate scenario. That evidence trail lets the team see which concessions created value and whether a later counter quietly changed another term.
Frequently asked questions
Can proposals with different terms be compared?+
Yes, but total cost alone may favour the shorter term. Review present value, effective rent, average monthly cost and the duration of commitment together, using the same modelling assumptions.
How should unknown additional rent be handled?+
Enter only a supportable estimate, label it clearly and run a sensitivity range. Do not substitute an unpublished market average and present it as a property fact.
Does the lowest economic cost mean the best lease?+
No. Economics are one decision dimension. Operational fit, legal provisions, flexibility, property condition, timing and execution risk can outweigh a modest cost advantage.
Primary references
These links support narrow factual points in this guide. They do not replace review of the proposal, executed lease or advice for the actual transaction.
BOMA — floor measurement standards ↗Primary standards overview for rentable-area measurement across commercial property types.This guide is general educational information and financial-workflow support. It is not legal, tax, accounting, engineering, environmental, appraisal or brokerage advice. Verify source documents and obtain appropriate professional advice before acting.