Tenant Representation
$32/SF vs. $28/SF: Which Lease Costs More?
Quoted rent alone cannot determine which lease is economically better.
The question
Two landlords can quote two rents. The lower number is easier to defend in a conversation. It is also an incomplete description of what the occupancy will cost.
The comparison that matters is total occupancy cost against what the tenant actually receives: space condition, operating structure, flexibility, and the cash required to occupy.
What looks obvious
$28 per square foot is four dollars cheaper than $32 per square foot. Over a 5,000-square-foot suite, that sounds like $20,000 per year before anyone opens the lease.
That arithmetic is correct only if every other term is equal. Leases are rarely equal. Operating expenses, escalations, concessions, improvement allowances, parking, utilities, maintenance, term, and options can move more money than the quoted-rent gap.
What quoted rent leaves out
A usable comparison has to look past the face rent. Material differences often include:
- Operating expenses / CAM, real estate taxes, and insurance — and whether they are included, capped, or passed through.
- Annual escalations on base rent, and whether expenses escalate too.
- Tenant-improvement allowance, free rent, and landlord work.
- Parking charges, utilities, and maintenance responsibilities.
- Term length, renewal options, and the cost of relocating or building out if the shorter or less flexible lease forces a move.
- Other occupancy costs that will be paid because of the space, not because of the quoted rent: after-hours HVAC, janitorial, signage, or specialized systems.
An illustrative comparison
The following leases are hypothetical. They are constructed so the quoted-rent gap is real and the other terms are also different. The purpose is to show why the $4.00/SF headline cannot finish the analysis — not to declare a winner in the market.
Both examples use a 5-year term. Base rent escalates 3% per year on the prior year's scheduled (face) rent. Operating expenses and parking are held constant to keep the arithmetic inspectable; that is a simplifying assumption, not a forecast. Totals are undiscounted. No present-value rate is applied, so a reader can add the rows without a discounting model. A discounted comparison could change the ranking.
All figures are per square foot. They are not asking rents from a specific building and not current market statistics.
Illustrative terms
| Item | Lease A · $32/SF quoted | Lease B · $28/SF quoted |
|---|---|---|
| Term | 5 years | 5 years |
| Year 1 quoted base rent | $32.00/SF | $28.00/SF |
| Base-rent escalation | 3% per year | 3% per year |
| Free rent | 3 months in Year 1 | None |
| Operating expenses / CAM, tax, insurance | $9.00/SF per year | $10.00/SF per year |
| Parking | Included | $1.50/SF per year |
| Tenant-improvement allowance | $20/SF | $15/SF |
| Illustrative remaining tenant build-out | $20/SF | $18/SF |
Base rent paid
Year 1 for Lease A is reduced by three months of abatement on $32.00/SF: $32.00 × 9/12 = $24.00. Escalations apply to scheduled rent, not to the abated Year 1 payment. Lease B has no abatement.
| Item | Lease A | Lease B |
|---|---|---|
| Year 1 base rent paid | $24.00 | $28.00 |
| Year 2 | $32.96 | $28.84 |
| Year 3 | $33.95 | $29.71 |
| Year 4 | $34.97 | $30.60 |
| Year 5 | $36.02 | $31.52 |
| Five-year base rent paid | $161.90 | $148.67 |
Approximate occupancy cost
Operating costs are held constant at the Year 1 illustrative amounts. Concessions appear as free rent (already in base rent paid) and as a lower remaining build-out where the allowance is larger.
| Item | Lease A · $32/SF | Lease B · $28/SF |
|---|---|---|
| Base rent paid | $161.90 | $148.67 |
| Additional rent / operating costs | $45.00 | $50.00 |
| Concessions reflected above | 3 months free rent; $20/SF TI | No free rent; $15/SF TI |
| Other material costs | $20.00 remaining build-out | $18.00 remaining build-out + $7.50 parking |
| Approximate five-year occupancy cost | $226.90 | $224.17 |
| Approximate average annual occupancy cost | $45.38/SF | $44.83/SF |
How to read the result
Quoted rent differs by $4.00/SF in Year 1. On this hypothetical cash basis, the average annual occupancy-cost gap is $0.55/SF. Lease B is slightly lower in total cash outlay. Lease A is not 'more expensive' by anything close to the quoted-rent spread, and it includes parking plus a larger improvement allowance.
Change the remaining build-out, the expense stop, the free-rent period, or the parking charge, and the ranking can move. That sensitivity is the lesson. The $28/SF quote did not automatically win. The $32/SF quote did not automatically lose. Quoted rent was not enough information to know.
The right question is not: “Which landlord quoted the lower rent?”
What can change the answer
Actual lease economics depend on the documents and the business, including:
- The precise operating-expense definition, base year, and any cap.
- Whether free rent applies to base rent only or to additional rent as well.
- When the tenant actually pays for improvements, and whether unused allowance is lost.
- Options, expansion, contraction, assignment, and restoration obligations.
- Relocation cost if one term is shorter or one space is a poorer operational fit.
- The tenant's cost of capital, if a discounted comparison is appropriate.
PCG view
The right question is not which landlord quoted the lower rent. It is what each location will actually cost the business, and what the tenant receives in return.
Compare occupancy cost, cash timing, space condition, operating risk, and flexibility. Then decide. The quoted rent is one line in that comparison — not the comparison.
Do not let the face rent finish a lease analysis it cannot complete.
This comparison is illustrative and hypothetical. It is not an offering, a bid, or advice regarding any specific premises. Actual lease economics depend on the specific lease documents and business circumstances.