Commercial Lease Proposal Comparison Calculator

How do you compare two commercial lease proposals fairly?

Put both on the same cash flow, then discount. Everything else is a shortcut that breaks somewhere.

The standard approach is net effective rent: add up the rent over the term, subtract the concessions, divide by the term. It's what the free calculators do, and one of the dedicated ones says so plainly — it's a straight-line average that does not discount future cash flows to a net present value. Omni's version says the same thing. That's fine for a rough sanity check and wrong for a decision.

The calculator's defaults show why. Deal A is a $28/RSF triple-net space with a 1.20 load factor, no free rent and a $10/RSF allowance. Deal B is a $49/RSF gross space with a 1.12 load factor, eight months free and a $45/RSF allowance. Same 10,000 usable square feet, same seven years.

On the straight-line total, Deal A wins by $58,861. On net present value at 8%, Deal B wins by $85,724. The two methods pick different buildings.

Nothing is wrong with either arithmetic. The difference is that Deal B's concessions — $869,867 of free rent and TI — all arrive in year one, while the higher rent that pays for them arrives over seven years. Straight-line treats a dollar in year one and a dollar in year seven as identical. They aren't. Discounting is what surfaces the $144,585 swing.

Should I use NPV or straight-line net effective rent?

NPV, and the reason is that straight-line has no opinion about timing — which is exactly what a concession is.

Try the discount rate sweep in the calculator. At 2% the two methods agree and both pick Deal A. At 4% they split. By 12% the NPV gap in Deal B's favour has grown to $132,438. The straight-line answer never moves at all, because it has no rate in it.

That's the tell. If your comparison metric doesn't change when your cost of capital changes, it isn't measuring the thing you care about. A tenant borrowing at 12% values eight months of free rent very differently from a cash-rich tenant discounting at 2%, and the same lease can genuinely be the better deal for one and the worse deal for the other.

Use straight-line for one thing only: it's what GAAP requires for rent expense recognition, so your P&L will show the straight-line number regardless of which lease you sign. That's an accounting output, not a decision input.

The practical approach is to run NPV at your actual cost of capital, then flex the rate up and down to see whether the answer is stable. If the winner flips somewhere inside a plausible range — as it does here between 2% and 4% — the deals are closer than they look and you should be negotiating rather than choosing.

What is load factor and how much is it really costing me?

Load factor is rentable square feet divided by usable square feet. You pay rent on rentable; you can only put desks in usable. The difference is your share of lobbies, corridors, restrooms and mechanical space.

Typical office load factors run 1.15 to 1.25, so tenants pay for 15% to 25% beyond the space they occupy, and older or less efficiently designed buildings run higher. The calculator's Deal A carries a 1.20 factor — 2,000 phantom square feet you pay for and never use. Deal B carries 1.12, so 1,200.

Here's why it matters for the comparison specifically. Quoted per rentable foot, Deal A looks cheaper. Quoted per usable foot, the ranking inverts — and nothing changed except the denominator:

Brokers quote per rentable foot because that's how leases are written. But you're buying usable space, so that's the number to decide on. Always ask for both figures and verify how the rentable number was calculated — BOMA publishes the measurement standards, though not every landlord follows them precisely. If the load factor looks unusually high, ask how common areas were measured.

How do operating expense stops and caps change the comparison?

They're the difference between a lease type and a lease cost, and they're where "cheaper" quotes go to die.

In a triple net structure the tenant pays their pro-rata share of building operating expenses on top of base rent. In a full-service or base-year lease the landlord covers them up to a stop, and the tenant pays only the increases above it. Compare a $15 NNN quote to a $22 full-service quote and the NNN space looks $7 cheaper — add $8 of opex and it's actually $1 more expensive.

The calculator handles this with one input rather than a lease-type dropdown. Set the expense stop to zero and the tenant pays the whole operating expense — that's triple net. Set it to the base-year figure and the tenant pays only the growth above it. Deal A runs a $0 stop against $11/RSF of opex; Deal B runs a $12 stop against $12/RSF, so Deal B's tenant pays nothing in year one and only the increases after.

Caps are the underrated lever. Deal B carries a 5% annual cap. Against 4% expense growth it's inert. Push growth to 9% and the cap saves real money — tenant opex over the term drops from $295,738 to $153,486. As one broker guide puts it, an operating expense cap can matter more over a five-year term than a dollar off the base rent.

Worth modelling both a base case and a high-inflation case before you trade a cap away for rent.

Can I compare a five-year lease against a ten-year lease?

Not on total NPV — that compares five years of cost against ten and always flatters the shorter deal. Use equivalent annual cost instead.

Equivalent annual cost takes the NPV and converts it into the level annual payment that would produce the same present value over that lease's own term. Divide the NPV by the annuity factor for the term and rate, and both deals land on a per-year figure you can actually set side by side.

The calculator does this automatically and shows the annuity factor so you can see the working. At the defaults both terms are seven years, so the factors match at 5.206 and the ranking is the same either way. Change Deal A to five years and Deal B to ten and the numbers separate: raw NPV of $2,013,305 against $3,723,979 makes Deal A look dramatically cheaper, while equivalent annual costs of $504,245 against $554,983 tell you the real gap is about $50,000 a year.

Two caveats worth holding onto. Equivalent annual cost assumes you'd renew or replace on similar terms when the shorter lease expires, which is an assumption, not a fact — a five-year deal in a rising market carries renewal risk the annual number doesn't show. And a longer term has option value in both directions: it locks your cost, and it locks you in. The calculator prices the cash flows, not the flexibility.