CRE glossary
Free rent (abated rent)
Free rent (also called abated rent or rent abatement) is a period at the start of a commercial lease where the tenant pays no base rent. Free rent is one of the four economic levers landlords use to win competitive deals alongside base rent, TI allowance, and term length, and is usually granted in months, typically 1 month per year of term in office leases.
Free rent serves two purposes. First, it offsets the tenant's real-world move-in costs, moving, IT, signage, soft costs not covered by TI. Second, it lets landlords offer rent concessions without changing the headline base-rent number that comps to other deals in the building. A $58/SF deal with 6 months free is competitive against a $54/SF deal with no concessions, but only the second prints a $54 comp.
Free rent comes in several structures. Gross free rent (most common): tenant pays nothing, no base rent and no operating expenses, for the abated period. Net free rent: tenant pays operating expenses (NNN charges, CAM) but no base rent. Fixturing period: a sub-category of free rent during construction, before commencement, when the tenant is building out the space.
The placement of free rent matters. Front-loaded (months 1–6) is the broker default and best for the tenant's cash flow. Spread (e.g., 1 free month per year) sounds equivalent but is mathematically worse for the tenant due to time value of money. Some landlords offer 'recapture' free rent triggered on lease execution, useful for tenants whose buildout takes longer than commencement allows.
Effective rent
Effective rent = (Total rent paid − TI − Free rent value) ÷ Term ÷ Premises SF
Example
- Headline rent
- $58/SF Year 1, 3% annual
- Term
- 84 months
- Free rent
- 6 months gross
- TI
- $85/SF
- Premises
- 12,500 SF
- Effective rent
- ~$48.20/SF/yr
Broker perspective
When pitching a tenant on a deal, always quote effective rent, the present-value-adjusted average rent over the term net of free rent and TI. Two deals with the same headline rent can have wildly different effective rents. DealDesk's modeler computes effective rent automatically and shows the spread vs comps in the same submarket.
Frequently asked
People also ask
How much free rent is normal?
Roughly 1 month per year of term in office leases (so 6 months on a 6-year deal). Submarket conditions move this, a 12% vacancy market sees 9–12 months on the same term.
Can I negotiate when free rent applies?
Yes. Front-loaded is best for the tenant. Spread is worse mathematically and rarely justified. Push back if the landlord proposes spreading.
Do I pay CAM during free rent?
Depends on the structure. Gross free rent abates everything; net free rent abates base rent only and tenant still pays NNN charges. Confirm in the LOI.
Is free rent reported to comps databases?
Yes, free rent shows up in the comp record alongside base rent. Reduces the deal's effective rent for comparison purposes. CompStak and similar services capture this.
Related terms
Base rent
The headline rent before pass-through expenses, usually quoted in $/SF/year and the starting point for every comp.
Tenant improvements (TI / TIA)
Money the landlord contributes toward customizing the space for the tenant, usually expressed as $/SF.
Letter of intent (LOI)
A non-binding outline of the major business terms, rent, term, TI, options, that becomes the basis for the binding lease.
Effective rent
Present-valued average rent over the term, net of free rent and TI, the real apples-to-apples cost number.
See free rent (abated rent) extracted from a real lease.
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