CRE glossary
Step rent (stepped rent)
Step rent is a rent escalation structure where future rent increases are pre-determined at lease signing, with specific dollar amounts or rates locked in for specific dates. Both parties trade certainty for the risk that actual inflation differs from what was modeled.
Step rent is the simplest and most common escalation method in U.S. commercial leases. A typical 7-year office lease might run: $50/SF in years 1–2, $52/SF in years 3–4, $54/SF in years 5–6, $56/SF in year 7.
Two common structures: fixed-percentage (e.g., 3% annually compounding) and fixed-dollar (e.g., $2/SF every two years). Fixed-percentage is more common in larger Class A leases.
Brokers should run present-value math, not just headline numbers. A lease with low Year 1 rent but aggressive 4% steps can total more in NPV than a flat 3% step on a slightly higher Year 1 rate.
Stepped rent (compounding)
Rent in year N = Initial rent × (1 + step rate)^(N − 1)
Example
- Year 1 rent
- $50.00 / SF
- Step (3% annual)
- +3% each year
- Year 5 rent
- $56.27 / SF
- Year 10 rent
- $65.24 / SF
Broker perspective
Step rent is the broker-friendly escalation — no surprises, no annual disputes about CPI calculations. Negotiate biennial rather than annual steps when possible. A 3% biennial step is materially better than a 3% annual step over a 10-year term.
Frequently asked
People also ask
Step rent or CPI escalation?
Depends on inflation expectations. Tenants prefer steps for predictability; landlords often prefer CPI for inflation protection.
What's a typical step rate?
2.5–3.0% annually is the most common range in office leases.
Can step rent be renegotiated mid-lease?
Generally no. Mid-lease changes require formal lease amendment, rarely granted without a tenant concession.
Related terms
Escalation (annual rent increase)
The mechanism for increasing base rent over the term, fixed percentage, CPI-indexed, or stepped.
CPI escalation
Rent rises annually with the Consumer Price Index, protects landlord against inflation; tenant should always negotiate caps.
Effective rent
Present-valued average rent over the term, net of free rent and TI, the real apples-to-apples cost number.
See step rent (stepped rent) extracted from a real lease.
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