Office proposals are written to be compared on asking rent, because that is the number landlords lead with. It is also the number most likely to mislead. Two proposals with similar asking rents can cost very different amounts once free rent, landlord contributions, escalations and the cost of making the space usable are counted.
This guide shows how to put two deals on the same basis. All numbers are illustrative.
Start with the same unit
Rent in New York is quoted per rentable square foot per year. Before comparing anything else, make sure both proposals are measured the same way, over the same term, and that you know what each one includes. Then work through the deal in two passes: effective rent, which captures the concessions, and total occupancy cost, which captures everything else.
Pass one: effective rent
Effective rent is the average rent you actually pay per square foot per year after concessions. A simple version takes the rent you would pay over the term, subtracts the free rent and the landlord’s contribution to the build-out, and divides by the term and the rentable area. More detailed analyses also discount future payments; the simple version is enough to rank most proposals.
| Space A | Space B | |
|---|---|---|
| Rentable area | 10,000 RSF | 10,000 RSF |
| Term | 7 years | 7 years |
| Asking rent | $72.00/RSF | $66.00/RSF |
| Free rent | 8 months | 4 months |
| Landlord contribution | $125.00/RSF | $60.00/RSF |
| Rent over the term, before free rent | $5,040,000 | $4,620,000 |
| Less free rent | −$480,000 | −$220,000 |
| Less landlord contribution | −$1,250,000 | −$600,000 |
| Effective rent | $47.29/RSF | $54.29/RSF |
Illustrative figures, not market pricing. Excludes escalations, operating costs, taxes and electricity. Same example as How We Work.
Space A asks $72.00, six dollars more than Space B. But with 8 months of free rent and a $125.00 landlord contribution, its effective rent is $47.29. Space B, with 4 months free and $60.00, comes to $54.29. The lower asking rent is the more expensive lease.
Pass two: total occupancy cost
Effective rent treats the landlord’s contribution as value. It only is value if it pays for work you would otherwise fund (see how tenant improvement allowances work). So the second pass asks what the company will spend to occupy each space over the term, including the charges explained in what office rent includes.
| Space A | Space B | |
|---|---|---|
| Rent paid over the term, after free rent | $4,560,000 | $4,400,000 |
| Build-out cost to deliver the same plan (illustrative $150.00/RSF) | $1,500,000 | $1,500,000 |
| Less landlord contribution | −$1,250,000 | −$600,000 |
| Tenant build-out exposure | $250,000 | $900,000 |
| Rent plus build-out exposure | $4,810,000 | $5,300,000 |
Illustrative. Add furniture, IT, moving, operating costs, taxes and electricity for each option on the same basis.
The ranking holds, and so does the $490,000 gap: both contributions are fully used by the build-out, so pass one already counted them correctly. What pass two adds is the cash picture. The company would fund $900,000 of Space B’s build-out itself, against $250,000 in Space A. If a contribution were larger than the work it pays for, or if Space B were already built to a layout that works, the answer could change, which is why the build-out has to be priced for each space rather than assumed.
The lines to put side by side
| Line | What to compare |
|---|---|
| Rentable area | Same measurement basis; loss factor |
| Base rent and escalations | Starting rent, fixed increases and when they apply |
| Free rent | Length, timing and whether it covers electricity and escalations |
| Operating expenses and taxes | Base years, your share, caps on controllable expenses |
| Electricity | Submetered, survey or included; the current rate |
| Landlord work / TI | Scope or amount, payment timing, eligible costs |
| Construction exposure | Priced build-out minus landlord contribution |
| Furniture and IT | Included, reusable or new |
| Moving and overlap | Moving costs and any period paying for two spaces |
| Timing | Delivery date and risk of delay |
| Security | Deposit or letter of credit amount, and any guaranty |
| Flexibility | Renewal, expansion, sublease and assignment rights |
| Floor efficiency | Seats and rooms that actually fit |
Floor efficiency
Rent is charged on rentable area, but the company pays for people and rooms. Two 10,000 RSF floors at the same $60.00 effective rent can hold different numbers of people because of columns, core position and window lines. If one fits 70 people and the other 60, the annual cost per person is $8,571 against $10,000. A test fit on each finalist is the only reliable way to know.
What the numbers leave out
- Timing. A space you can occupy two months sooner may save rent on your current lease, or avoid holdover.
- Security. A larger deposit or letter of credit ties up cash that could fund the business.
- Flexibility. Sublease rights and renewal or expansion options have value that doesn’t appear in rent.
- Risk. Custom construction carries schedule and budget risk that a built space does not.
For the negotiation itself, see how to negotiate an NYC office lease.