Rent Abatement (Free Rent)
A lease concession where the tenant pays no rent for a specified period, typically at the beginning of the lease term.
Definition
Rent abatement is a concession landlords offer to attract tenants, structured as a period of free or reduced rent. It's typically granted at lease commencement to help tenants manage move-in costs and buildout periods. Abatement can also be spread throughout the lease term or applied to base rent only (with NNN expenses still due). From an underwriting perspective, abatement reduces effective rent—a 36-month lease with 2 months free has an effective rate approximately 5.5% below the face rate. In strong markets, abatement is minimal or zero. In soft markets or for credit tenants signing long terms, abatement can reach 3-6 months. Landlords prefer abatement over rate reductions because it preserves face rent for future escalations and comparable transactions.
Example
A tenant signs a 3-year lease at $15/SF NNN with 2 months free rent at commencement. Face rent over 36 months: $15 × 3,000 SF × 36 = $1,620,000. Actual rent collected: $15 × 3,000 SF × 34 = $1,530,000. Effective rent: $1,530,000 / 36 months / 3,000 SF × 12 = $14.17/SF.