Rollover Risk

Rollover risk is the exposure a property faces when leases expire and tenants may not renew, leaving space vacant or re-leased on worse terms. Measured as the share of rent, income, or square footage scheduled to expire in a given window, it drives vacancy loss, downtime, and re-leasing cost. It is a core leasing risk in commercial real estate underwriting.

How Does Rollover Risk Work?

Rollover risk works by concentrating lease expirations into windows where a landlord has limited time to renew tenants or find replacements. The core measure is the share of total rent, square footage, or net operating income scheduled to expire in a period. Underwriters read this from a lease rollover schedule built off the rent roll.

The schedule sorts every lease by expiration and totals expiring rent per year. A period where a large share of income rolls at once is a concentration. Per CRE Wisdoms, short-term rollover usually refers to leases expiring within the next twelve to twenty-four months, the most immediate risk because there is little time to backfill.

When tenants do not renew, the property absorbs downtime, vacancy loss, tenant improvement cost, leasing commissions, and free rent before new income begins. Each of these compresses cash flow in the year the space rolls, which is why the timing of expirations matters as much as their size.

Why Rollover Risk Matters

Rollover risk matters because clustered lease expirations can crater cash flow in a single year, threatening debt service and forcing costly re-leasing. Lenders treat it as a primary underwriting risk: properties with a large share of leases expiring inside the loan term face higher DSCR thresholds or reduced loan proceeds. The risk sits in the timing, not just the total.

Practitioners often flag a period exceeding 20% of revenue rolling within a single 12 to 18 month window as a dangerous concentration. Per The AI Consulting Network, AI rollover analysis specifically hunts for expiration clusters where more than 20% of revenue is at risk in one such window, because that is where a few non-renewals can move NOI materially.

The quotable point for an operator: rollover risk is not about how many leases expire but about how many expire at the same time. A property with staggered expirations can absorb a lost tenant; a property with 40% of its rent rolling in one year cannot.

Example

A property collects $1,000,000 in annual base rent across ten tenants. In 2027, three leases totaling $250,000 expire. Rollover for that year is $250,000 divided by $1,000,000, or 25%, above the 20% concentration flag. Assume one of the three tenants, paying $100,000, does not renew and the space sits vacant for eight months before backfill.

The $116,667 hit lands in one year on a single non-renewal. That is a roughly 11.7% drag on the property's $1,000,000 rent base, concentrated where the schedule showed the cluster. Staggering those three expirations across three years would have cut the single-year exposure by two-thirds.

Variations and Edge Cases

Rollover risk is not uniform: its severity depends on tenant credit, market conditions, and how expirations are spread. The same rollover percentage can be low-risk or high-risk depending on whether the rolling tenants are likely to renew and whether market rent is above or below in-place rent. The table below covers the variants underwriters weigh.

The common mistake is reading the gross rollover percentage alone. A 30% rollover of tenants likely to renew into a rising market is far less dangerous than a 15% rollover of at-risk tenants in a soft market. Renewal probability and market direction turn the same number into opposite outcomes.

Rollover Risk vs Vacancy Rate

Rollover risk is often confused with vacancy rate, but they measure different things. Rollover risk is forward-looking: the share of income scheduled to expire and potentially go vacant. Vacancy rate is a point-in-time measure of space currently empty. One is a projection of exposure; the other is a snapshot of the present.

Both feed underwriting, but they answer different questions. Vacancy rate tells you what is empty today. Rollover risk tells you what could go empty as leases roll. A fully occupied building can carry heavy rollover risk if most of its leases expire in the same near-term window.

Frequently Asked Questions

How is rollover risk measured?Rollover risk is measured as the share of total rent, square footage, or net operating income scheduled to expire in a given period, read from a lease rollover schedule. Analysts often flag any 12 to 18 month window where more than 20% of revenue is set to roll as a dangerous concentration.

What is a lease rollover schedule?A lease rollover schedule sorts every lease in a property by expiration date and totals the expiring rent for each future year. It lets an underwriter see where expirations cluster and how much income is exposed in any single window, which is the starting point for stress-testing rollover risk.

How do lenders treat rollover risk?Lenders treat rollover risk as a primary underwriting concern and stress-test it directly. Properties with a large share of leases expiring inside the loan term commonly face higher DSCR thresholds or reduced loan proceeds, because clustered non-renewals can compress cash flow enough to threaten debt service.

Related Terms

• Weighted Average Lease Term

• Renewal Option

• Tenant Retention Rate

• Rent Roll

• Net Operating Income