Loss-to-Lease
The gap between in-place rents and current market rents on occupied space, expressed as lost income the landlord is not yet collecting.
Definition
Loss-to-lease measures how far below today's market a property's existing leases sit. It is the difference between what tenants currently pay and what those same units would rent for if vacated and re-leased at market. Owners track it to size mark-to-market upside in a lease-up or value-add plan: as leases roll, catching rents up to market converts loss-to-lease into NOI. In small bay industrial, loss-to-lease often builds during strong rent-growth periods because 1–3 year leases still lag a hot market, especially when renewals were signed soft or with limited escalations. It is not vacancy loss—units are occupied—but under-market income on occupied SF. Underwriters separate loss-to-lease from physical vacancy so they do not double-count upside.
Formula
Loss-to-Lease = (Market Rent − In-Place Rent) × Occupied SF (or sum of unit-level gaps)Example
A 40,000 SF small bay building is 95% occupied at an average in-place rent of $14.50/SF. Current market for comparable units is $17.00/SF. Occupied SF = 38,000. Loss-to-lease = ($17.00 − $14.50) × 38,000 = $95,000 per year of mark-to-market upside if every lease rolled to market with no downtime.
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