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3 Ways to Use Lease Management Software for Inflation Protection TACKLING INFLATION WHILE MANAGING MULTIPLE LEASES CAN BE ESPECIALLY CHALLENGING, BUT IT DOESN’T HAVE TO BE WITH THE RIGHT TOOLS AND DATA.
By Matt Giffune
N o one is immune from inflation. The rising costs of goods, services, loans, and leases have impacted consumers and businesses alike. The impact of inflation on commercial real estate has been enormous, especially because inflation can drastically increase the cost of rent. As business leaders know, their lease portfolio is their second largest expense after payroll. That cost
tends to increase in high-inflation environments because of the specific triggers in rent escalation clauses. These rent escalation clauses are standard in commercial leases: Their function is to protect the values of the leases and ensure that landlords are able to maintain cash flow. Rent escalation clauses function in two main ways: percentage increases or measures tied to the consumer price index.
Percentage increases bump up the rent expense by a specific amount. For instance, if your lease commenced at $45 per square foot with a 2% annual increase, then, in your second year, the cost per square foot would be $45.90. Conversely, the consumer price index ties rent increases to the overall measure of inflation in the economy. During 2022, the consumer price index rose 6.5%, which would push your rent per square foot to $47.93.
48 | think realty magazine :: may – june 2023
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