Are LLs asking for higher annual rent increases with inflation so high?
I haven’t put together an LOI in a few months. Im used to seeing 2-3% annual increases in contracts. Can I still expect that or should I anticipate seeing something higher?

These are usually 5-10 year terms with 2-3 options.

We are all hoping this inflation is a short term problem right?
[{"id": "iggubb9", "text": "They can try to get larger rent increases, but will they get them in this environment? Definitely a tenant's market in office. Retail too, in many areas. This is currently a highly negotiable point and the LL calculus may shift to more flexible positions that help them maintain occupancy at market rents through a possible downturn and absorb higher inflation short term inside the income statement.", "replies": [{"id": "igh51ky", "text": "Agreed. OP should look at market vacancy and rent trends for their specific property type. \nLots of places still are working remote so there is high vacancy in office space and may even see continue to see rent decreases in office buildings.\nRetail is mixed depending on location and popularity.\nIndustrial/warehouse rent continues to increase due to high demand for warehouse space close to cities for same day deliveries.\nApartment rent is similarly seeing high rent growth due to 12 years of below average housing starts causing a housing shortage.", "replies": [], "depth": 2}, {"id": "igiutcd", "text": "Where are you reading it\u2019s a tenants market? East coast cities it\u2019s seemingly the opposite", "replies": [{"id": "igixf4i", "text": "Could be. We aren't on the east coast in office.\n\nWe are in a few office markets around the country and remote work (now inflation) has contributed to downsized footprints, higher subleasing and ghost suites..all have exponentially increased vacancy in many markets.\n\nWe can start here:\nhttps://buildremote.co/companies/reducing-office-space/\n\nThen here..\nhttps://www.globest.com/2022/06/06/kastle-says-43-office-occupancy-new-normal-nationwide/\n\nAnd here..\nhttps://allwork.space/2022/05/what-can-we-expect-for-the-future-of-office-occupancy/\n\nWe have entered into to contracts this year on suburban office that fell out because the properties were marketed on LOIs being in place leases and the tenant backed out of their agreements during escrow.\n\nThere's still leasing but it's costing more to landlords because potential tenants have more leverage in office currently. Lower rents, flattened increases, higher TI, higher LCs to bring quality tenants, more non-rev amenities...and now as mentioned above higher inflation and cost delays on pretty much everything from HVAC to vinyl flooring as well as the tightness in the labor market..adding to TI and repair costs \n\nIn a nutshell that's what I'm seeing.\n\nNow if you play in Class C, smaller properties or small Suite rentals, maybe you're not feeling the effects that larger and higher quality buildings are.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "iggv13z", "text": "Traditionally is 3%, but it depends on the market and the tenant. In some countries with high inflation, you could index the increase. Even here in the US, I have seen tenants that have increases based on inflation rates, but with both a ceiling and a bottom. (usually between 2.5% and 5%). I think in this environment, you would still allow a 3% increase, because having a credit tenant adds value to your property, but options can become a liability more than a strength.", "replies": [{"id": "ighgllr", "text": "As a comparison , in Chile rents are indexed on CPI. They created a unit of accounts called UF, so each month your rent goes up to match whatever inflation was that month. Clever, but tenants don\u2019t like it in this environment lol", "replies": [], "depth": 2}], "depth": 1}, {"id": "iggw9df", "text": "I have a national credit tenant up for renewal who not only tried to ask for a big reduction for 5 years, but provided \u201ccomps\u201d that were totally irrelevant. When I pointed that out they responded with, well how about not raising the rent at all then and leaving it as is? lol not going to happen because that would mean zero increase for 10 years; we will however reduce the 3% for the first two years and see how they respond.", "replies": [], "depth": 1}, {"id": "iggwlcu", "text": "Depends on the product and the location. Seeing a lot of industrial get done in Texas w/ 4% escalators", "replies": [], "depth": 1}, {"id": "iggxbb1", "text": "A lot of people asking for greater of CPI or 3% right now from what I have seen. Sometimes with caps.", "replies": [{"id": "igjm6an", "text": "How is broker commission from total gross lease amount calculated when annual bumps use CPI? I.e. if bumps aren\u2019t fixed %", "replies": [], "depth": 2}], "depth": 1}, {"id": "igh2gbf", "text": "We are getting 5% in Atl. Don\u2019t tell anyone \ud83e\udd2b", "replies": [{"id": "igh4f80", "text": "5% on an RFP for flex space in Detroit area, was blown away. Listing broker said they're getting it.", "replies": [], "depth": 2}], "depth": 1}, {"id": "igh3rsb", "text": "Seeing the ask for CPI (smart) more so than a specific rate per se....", "replies": [], "depth": 1}, {"id": "igh5fp8", "text": "My team is doing 15% rent bumps with no renovation on 2 bedroom apartments and 25%-55% depending on partial or full renovation in San Antonio, TX.", "replies": [{"id": "igiezub", "text": "Are these on new rents or also on renewals. If renewals, man that's one way to do it....", "replies": [{"id": "igiq6n5", "text": "For renewals we have 3 options: MTM at a 5% bump (nonrenovated), to stay in their current unit for a 15% bump (flooring replaced during their lease) or move into a fully renovated unit 25%-55% depending on level of renovation. In some units we replaced everything including all of the appliances. Renovation is $5,000-$7,200 per unit which is recouped in about 16-18 months which is about the right time frame. With amenity upgrades we are putting in about $350k into the property in the first 1.5 years. All 4 of our units under renovation already have new tenants with deposits paid. 2 units will be done on Monday and the other 2 by the end of the week. \n\nWe are raising rents closer to market and doing full renovations with added amenities like a playground, BBQ area with shade, and dog park. Our typical reno rent 2bd/1ba is $975 and I just had 2 people offer $1250 for our fully renovated unit currently being done. We have so much demand it's crazy. We are a short drive outside of San Antonio and if you go just 10 min the rents are $1,400-$1,700 with no renovation. About 70% of our renewals like the renovations and have requested a new unit. \n\nWe've done 14 units in the last 5 months and our goal is to create a community. The previous owner didn't screen tenants very well and there is a bit of We do have some not so good tenants with drugs and fighting at 1am with cops called and everything. So the good tenants are happy to see us push out the problem people (only 3 tenants now) and unfortunately housing assistance (section 8) isn't working with us. They didn't want us to raise rents more than $20.", "replies": [{"id": "igj6rvz", "text": "Your example is not the same as commercial leasing practices", "replies": [{"id": "igjihch", "text": "My first comment was about apartments referencing 2 bedroom units. So your question was following up my first comment.", "replies": [{"id": "ignfaiw", "text": "Ya but 15% increases on rent for 2 bedroom apartments is not relevant info for someone who does commercial leasing", "replies": [{"id": "ignjxhf", "text": "Multifamily apartments are commercial real estate and the post was not specific to what type of commercial real estate.  My initial comment is valid and was clarified as 2 bedroom apartments. Don't get so butt hurt over the little stuff.", "replies": [], "depth": 7}, {"id": "ignkqvc", "text": "If you want to talk retail space, then there are several businesses in my local area that are seeing a 150%-200% increase in rents for new tenants and renewals.", "replies": [], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "igib37c", "text": "Tough argument for 10 year leases, especially when tenants are presumably picking up the tab on expense increases.", "replies": [], "depth": 1}, {"id": "igibjnd", "text": "I'm not having any trouble negotiating CPI indexed rents or much larger than usual rent increases in the current market. Even the bjg banners who normally want close to fixed rent have been agreeing to my demands.\n\nI think we\u2019re in a good environment to negotiate for CPI indexed rent because of how prevalent inflation is in the news and how perceivable it is in the economy.", "replies": [], "depth": 1}, {"id": "igitsd2", "text": "Back in the day nyc we would do \"porters wage\" increase. Meaning rent bumps equivalent to what local 52 negotiates in their contract.", "replies": [], "depth": 1}, {"id": "igj583w", "text": "If annual rent growth is high it will most likely have built in increases", "replies": [], "depth": 1}, {"id": "igjgng6", "text": "Industrial is standard 4% right now but often 4.5% in Los Angeles. All the local institutional are trying and sometimes getting close to 5%", "replies": [{"id": "igkio0l", "text": "I\u2019m still seeing everything from a 3.0% to a 4.75% here. Yet to see a 5.0% but I believe you.", "replies": [{"id": "igkro3r", "text": "That\u2019s the case for now anyway. Our market is still pretty strong when it comes to class A/B buildings though. It\u2019ll change as the economy shrinks. CPI would be nice but too much effort for everyone involved to agree upon", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "igjhtoq", "text": "I just wrote a lease for \"4% or CPI, whichever is higher\".\n\nPlus a 10% bump at the end of year 5 on top of annual CPI.", "replies": [], "depth": 1}, {"id": "igjt4zl", "text": "We've adjusted our terms to 3% annual increase with a one time 5% increase at option execution.  3% annual increase has always been the norm.  However, depending on area annual increase continues through options or there is a 5% increase at execution.", "replies": [], "depth": 1}]