4% Escalation on Triple Net?
Hello, 

A family member of mine is looking at securing a 2500 sq ft Office Space in a very “hot” neighborhood of Atlanta.  It’s a 5 year + 5 year option lease at ~$28/sqft + NNN costs (~$8/sqft, reportedly)

This all seems well and good, all but expensive, but there is also a 4% yearly escalation for all of the total 10 years.  This seems extremely high since it’s a triple net on an old building in a neighborhood that’s already seen its appreciation. 

Is this normal?
[{"id": "f6lshzt", "text": "3% is normal in the areas outside of DC. 2.5% downtown. \n\n4% could be the norm. If you\u2019re working with a broker, ask for comps. If you\u2019re not working with a broker, I hope you get lucky with an answer from the internet that is correct.", "replies": [{"id": "f6mzqe1", "text": "3% is the norm because the base rents in Virginia and Maryland are low and TI allowances are enormous. The office market has been the toilet since 2008.  \n\n4% almost certainly means there are other factors at play.  If it is indeed a hot area, maybe the base rent is low.  We also don't know what the concessions are.", "replies": [{"id": "f6napkl", "text": "Perfect, this is very helpful.  From my very basic research, I was more-so looking to confirm that an escalation fee on a NNN in the 4% range wasn\u2019t anything egregiously out of the ordinary, like a 20% acquisition fee on a deal or something of that nature. I\u2018ve never worked with commercial leases so had no idea. \n\nThanks for the help. \n\nBest,\nSalem", "replies": [{"id": "f6nol3n", "text": "Yeah higher than 3% escalations almost always means concessions on the landlord's part early on.  Even retail rents in Soho in Manhattan don't have 4% annual escalations in the vast majority of cases.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "f6lsnvd", "text": "I\u2019m a real estate broker in Atlanta. This doesn\u2019t seem out of the realm of possibility. DM me with more specific location and tenant and I can give you a more informed opinion", "replies": [], "depth": 1}, {"id": "f6mfkg6", "text": "&gt; in a very \u201chot\u201d neighborhood\n\nAnswered your own question there.\n\nThe only thing that really answers to escalation is inflation and market pressures. Age and appreciation aren't particularly relevant.", "replies": [], "depth": 1}, {"id": "f6v6nan", "text": "Doesn\u2019t seem that high tbh. You\u2019re not a tenant with strong financials and credit, therefore you get higher escalations and such as like a \u201csecurity\u201d provision sort of. If you were a government tenant with government guarantor you\u2019d probably get 2%.", "replies": [{"id": "f6v6rto", "text": "Note: not criticizing the business or saying it\u2019s not successful. Just 2.5k SF is like nothing in terms of office space. The flat fees it\u2019ll cost the owner\u2019s firm to rent with you (legal, etc) alone are gonna result in needing 4% to cover that....cause the margins are pretty tight.", "replies": [], "depth": 2}], "depth": 1}]