Effective rent

Effective rent is asking rent adjusted for what the landlord gives back. When a market softens or a new building needs to fill quickly, owners often keep the advertised rent unchanged and instead offer a month or two free, a waived deposit, or a gift card. The headline rent stays high, but the money collected over the lease is lower. Effective rent spreads the concession across the lease term to show the true monthly figure.

Effective rent = (asking rent × lease months − concessions) ÷ lease months

Owners prefer concessions to lower asking rents for two reasons. Concessions are temporary and do not reset the base rent for renewals, and the asking rent is what appraisers and lenders often look at first. Sophisticated underwriting looks through to effective rent, but the gap between the two is a well-known place for optimism to hide in a pro forma.

For readers watching housing costs, effective rent is the better measure of what a market is doing. A period of rising concessions is a sign that supply is catching up with demand and that absorption has slowed, even if advertised rents have not moved. The reverse, concessions disappearing, is often the first sign that rents are about to rise.