Rent Escalator

A rent escalator is a clause in a commercial lease that provides for periodic increases in base rent over the lease term, protecting the landlord's income from inflation erosion. Common NNN rent escalation structures include: (1) Fixed increases - a set percentage (typically 1.5-2%) annually or every 5 years (e.g., Dollar General 10% every 5 years). (2) CPI-linked - adjustments tied to the Consumer Price Index, providing direct inflation protection. (3) Fair Market Value (FMV) resets - periodic adjustments to current market rents. (4) Percentage rent - additional rent based on tenant's gross sales above a threshold. For NNN investors, rent escalators are critical for maintaining real returns over 15-25 year lease terms. A flat lease with no escalation loses approximately 2-3% of purchasing power annually to inflation. A 2% annual escalator grows a $100,000 rent to $121,899 over 10 years, while a flat lease remains at $100,000.

Rent Escalator is a key concept that affects property valuation, financing decisions, and investment returns in the triple net lease market. Understanding Rent Escalator helps investors make informed acquisition and management decisions.

Rent Escalator directly influences how commercial properties are valued, financed, and traded. Changes in Rent Escalator can impact cap rates, NOI calculations, and overall investment performance for net lease properties.

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