Market rent is the rent a space would command today if leased under prevailing conditions to a willing tenant, based on comparable leases in the same submarket. It reflects supply, demand, location, and quality rather than any single landlord's ask. Appraisers and underwriters use it as the neutral benchmark for pricing space.
How Is Market Rent Estimated?
Market rent is estimated by analyzing recent lease comparables for similar space in the same submarket, then adjusting each comp for differences in size, quality, location, lease term, and concessions. The result is a per-square-foot rate the subject space should achieve today. This is the sales comparison logic applied to leasing, using signed lease comps rather than sale prices.
Per appraisal practice, an analyst gathers three to six recent lease comps, adjusts each up or down for how it differs from the subject, then reconciles them into a single market rent estimate. Because asking rents often overstate what tenants actually pay, credible estimates lean on effective rents from signed deals, net of free rent and tenant improvement concessions, not on advertised numbers.
Adjustment factor | Why it moves market rent |
Size | Larger spaces often lease at a lower per-square-foot rate |
Quality and age | Class A and renovated space commands a premium over Class B or C |
Location | Submarket, access, and visibility shift the rate materially |
Lease term | Longer terms and stronger tenant credit affect the rate landlords accept |
Concessions | Free rent and improvement allowances lower effective rent below face rent |
Market rent is a modeled estimate, not an observed price, so two analysts can reach different figures from the same comp set. The discipline is in the adjustments and in using effective rather than face comps, because that is where an aggressive assumption hides.
Why Market Rent Matters
Market rent matters because it is the assumption that drives projected income, loss to lease, and exit value, and every dollar of overstatement compounds through the model. Underwriters mark in-place rents to market to estimate upside on renewal, so an inflated market rent manufactures NOI and value that will never be collected.
The stakes are concrete. Per CBRE, US office average asking rent reached $37.21 per square foot in Q1 2026 while taking rent was $33.35, a 10.4% spread driven by concessions. An analyst who adopts the $37.21 asking figure as market rent, rather than the roughly $33 effective level tenants actually paid, overstates income by about 10% before the model even runs. Market rent is the assumption to defend, not to accept at face value.
Example
An analyst is setting market rent for 5,000 square feet of Class B office. Three recent comps signed at $34, $36, and $38 per square foot on a gross basis. The subject is slightly inferior to the $38 comp and superior to the $34 comp, so the analyst applies adjustments and reconciles to $36 per square foot. Against an in-place lease at $30, that implies a $6 per square foot gap.
Comp | Face rent (per SF) | Adjustment | Adjusted rent |
Comp A | $38 | -$3 (superior quality) | $35 |
Comp B | $36 | +$1 (inferior location) | $37 |
Comp C | $34 | +$2 (smaller, older) | $36 |
Reconciled market rent | $36 |
At $36 per square foot on 5,000 square feet, market rent implies $180,000 in annual gross rent. The in-place lease at $30 produces $150,000, a $30,000 annual gap. That gap is only real if the $36 estimate holds when the lease renews. If two of those comps carried three months of free rent, the true effective market rent is nearer $33, and the recoverable gap is half of what the face comps suggested.
Variations and Edge Cases
Market rent behaves differently across property types and lease structures, so a single per-square-foot number can mislead without context. The table below covers the variants an underwriter should confirm before crediting any rent assumption.
Variant | Treatment |
Gross vs net market rent | A net lease rate excludes operating expenses; it is not comparable to a gross rate |
Face vs effective market rent | Effective rent nets out concessions and is the honest benchmark in soft markets |
Contract rent | The actual in-place rent under a signed lease, which can sit above or below market |
Thin comp sets | Few recent comps widen the estimate's error band and invite bias |
Rising vs falling markets | Market rent can outrun in-place rents in a boom and fall below them in a downturn |
The most common mistake is treating advertised asking rent as market rent. Asking rent is a landlord's opening number; market rent is what comparable tenants actually agreed to pay after negotiation and concessions.
Market Rent vs Contract Rent
Market rent is often confused with contract rent, and the distinction drives underwriting. Market rent is what a space would lease for today under current conditions. Contract rent is the actual rent a sitting tenant pays under an existing lease signed at some point in the past. One is a current-market estimate; the other is a locked-in historical fact.
The gap between them is where investment theses live. When contract rent sits below market rent, the difference is loss to lease, recoverable upside as leases renew. When contract rent sits above market rent, the lease is above-market and faces reset risk at renewal. Underwriters normalize contract rents to market rent to compare properties and to project a stabilized income stream.
Frequently Asked Questions
How is market rent estimated?Market rent is estimated from recent lease comparables for similar space in the same submarket, each adjusted for size, quality, location, lease term, and concessions, then reconciled into a single per-square-foot rate. Credible estimates use effective rents from signed deals rather than advertised asking rents.
What is the difference between market rent and contract rent?Market rent is what a space would lease for today under current conditions. Contract rent is the actual rent a sitting tenant pays under an existing lease signed earlier. The gap between them is loss to lease when contract rent is lower, or reset risk when contract rent is higher.
Is market rent the same as asking rent?No. Asking rent is the advertised price a landlord requests, an opening position that may be negotiated. Market rent is the rate comparable tenants actually agreed to pay after negotiation and concessions. Asking rent usually sits above market rent, so treating the two as equal overstates income.
Related Terms
Asking Rent
Net Absorption
Loss to Lease
Rent Roll
Pro Forma