Is this rent increase normal? The greater of 5% or CPI every year

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July 20, 2021

by a searcher from Harvard University - Harvard Business School in Grand Rapids, MI, USA

I'm in the process of negotiating a lease renewal as part of a transaction. It is a retail business in a popular location in Florida. The real estate company is proposing a rent increase to market price AND they are proposing an annual rent increase of 5% or CPI, whichever is greater. The length of the lease is 10 years.

A 5% increase every year for 10 years seems high. What's typical or how should I negotiate?

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Reply by a professional
from Marquette University in Kirkland, WA, USA
A current deal, and a couple recent ones, had CPI for two and 3% for the other. Just as concerning is the rent increase. This means lower profits. Has this been factored in to the pricing? Negotiation is different if it's the seller you're leasing from or an outside landlord. I would contact a commercial RE broker who specializes in retail to represent you.
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Reply by a searcher
from Harvard University in Minneapolis, MN, USA
Yes, that feels high. Leases that I've recently entered had an annual escalator between 2-3%.
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