Rent Abatement

Rent abatement is a lease concession where the landlord grants the tenant a period of reduced or free rent, typically at the beginning of a lease term, as an incentive to sign. Common abatement structures include 1-6 months of free rent on a 5-10 year lease. While the tenant pays no rent during the abatement period, the lease's face rent remains unchanged, which preserves the property's appraised value. Investors must calculate the net effective rent - the actual average rent after spreading the abatement across the full lease term - to accurately underwrite income. For example, a 10-year lease at $30/SF with 6 months free has a net effective rent of approximately $28.50/SF. For NNN investors, rent abatement on an existing lease reduces near-term cash flow but may indicate a strong long-term tenant commitment at favorable rates. Abatement is also a tool during lease-up of newly developed properties.