Three Escalation Structures You'll See
- Fixed %: Simple, predictable — most common in office and industrial. 2.5–3.5% annual is market.
- CPI w/ Floor & Cap: Inflation-linked but bounded. Tenant gets protection in low-inflation years (floor); landlord gets ceiling in high-inflation years (cap). Standard in long-term retail and some industrial.
- Stepped: Periodic jumps (e.g. 10% every 5 years). Common in below-market initial rents to mark-to-market later.
CAM — The Other Half
For NNN and modified gross leases, CAM (Common Area Maintenance) recovery is a meaningful component of landlord gross income. Tenants pay their pro-rata share of property tax, insurance, and maintenance — and CAM typically grows 3–5% annually, faster than rent escalators in many years.
Pair with NER, NOI, and TI Allowance ROI.
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