Are you comparing two Downtown Nashville office proposals that look nothing alike on paper? One shows a lower rent but fewer free months, the other touts a big TI allowance and a higher sticker price. You are not alone if it feels impossible to tell which one actually costs less over time. In this guide, you will learn how to turn any offer into an apples-to-apples net effective rent so you can pick the best deal with confidence. Let’s dive in.
Face rent vs net effective rent
Face rent defined
Face rent is the headline number you see in a brochure or email, usually quoted as dollars per square foot per year. It may be full-service gross, modified gross, or net. Face rent does not include concessions like tenant improvement dollars or free rent, and it may not reflect what you pay for operating expenses.
Net effective rent explained
Net effective rent, or NER, shows your true economic cost after you account for concessions and timing. You convert all the costs and credits into an annual dollars per rentable square foot figure over the term. You can calculate NER two common ways:
- Simple average: total rent over the lease term minus the value of concessions, divided by RSF and years.
- NPV approach: discount future rent and concessions to today’s dollars using a stated discount rate, then divide by the present value of occupied years and RSF.
NER only works if every offer is on the same measurement and expense basis first. You must normalize to RSF and align on gross versus net.
Why it matters in Downtown Nashville
From 2020 through mid-2024, Downtown Nashville saw higher availability in several buildings, especially older Class B assets. Landlords competed for credit tenants and offered more concessions, while top Class A towers with amenities remained more durable. Sublease options also expanded, which increased tenant choice.
In this environment, face rent can be misleading. A lower sticker price in a net lease with high operating expenses can cost more than a higher full-service gross rent with richer concessions. Converting to NER helps you use the market to your advantage and select the structure that best fits your timeline and cash flow.
Normalize offers step by step
Step 1: Align on square footage
- Confirm whether quotes are per RSF or USF.
- Convert any USF quotes to RSF using the building’s stated load factor or measurement standard.
- Standardize all offers on RSF.
Step 2: Match the expense basis
- Decide whether you will compare on a full-service gross basis or a net plus estimated expenses basis.
- If one offer is gross and another is NNN, add projected taxes, insurance, and CAM to the NNN quote, or adjust the gross quote to an equivalent net figure.
- For NNN, use the landlord’s current expense estimate and the lease’s base year or expense stop language to forecast your share.
Step 3: Convert concessions to annual $ per SF
- Free rent: multiply monthly base rent by the number of abated months. Spread that value over the term and divide by RSF.
- Tenant improvement allowance: convert TI dollars per SF into an annual impact. Use straight-line over the term for a quick view, or amortize with an interest rate to reflect cost of capital.
- Other items like moving credits or free parking can be converted to a dollar value, then spread over the term and divided by RSF.
Step 4: Capture escalations and timing
- Simple averaging: include scheduled base rent bumps when you sum total rent before subtracting concessions.
- NPV method: discount all cash flows, including TI and free rent timing, to present value using your chosen discount rate.
Step 5: Produce your comparison outputs
- Net effective rent per RSF per year using simple average.
- Net effective rent per RSF per year using NPV with your stated discount rate.
- Headline face rent and a summary of concessions, expense basis, and escalations.
- Expected year 1 occupancy cost and average annual cash outlay.
Example: two ways to view the same deal
Below is a hypothetical scenario to show how method and timing change the answer.
- Face rent: 36.00 per RSF per year, flat for 5 years
- Suite size: 10,000 RSF
- TI allowance: 50.00 per RSF
- Free rent: 3 months at commencement
Simple averaging:
- Annual base rent is 36 x 10,000 = 360,000. Over 5 years = 1,800,000.
- Free rent value is 360,000 divided by 12, times 3 months = 90,000.
- TI value is 50 x 10,000 = 500,000.
- Net rent over term is 1,800,000 minus 590,000 = 1,210,000.
- Net effective rent is 1,210,000 divided by 5 years and 10,000 RSF = 24.20 per RSF per year.
Amortized TI at 5 percent over 5 years:
- Annualized TI payment is about 115,000 per year, or 11.50 per RSF per year.
- Free rent annualized is 90,000 divided by 5 years = 18,000 per year, or 1.80 per RSF per year.
- Net effective rent is 36.00 minus 11.50 minus 1.80 = 20.70 per RSF per year.
Both views are useful. The simple method is fast for comps. The amortized or NPV method reflects timing and cost of capital, which matters more on larger TI or longer terms.
What moves the numbers
Operating expenses and pass-throughs
Two offers with the same face rent can diverge if one is NNN with higher taxes and CAM and the other is full-service. Confirm current expense estimates, expected annual increases, and any base year or stop language that shifts costs to you over time.
Rental escalations and CPI
Fixed bumps and CPI indexing change both total rent and cash flow timing. Over longer terms, these differences can materially change NER, especially when layered with expense pass-throughs.
Parking and storage
If parking is billed per space per month, convert the total monthly cost to an annual per RSF number. If one building includes parking and another charges, adjust accordingly before you compare NERs.
Security deposits and letters of credit
These tie up cash. If you post a letter of credit, include bank fees and opportunity cost in your cash flow view, even if you keep them out of the headline NER.
Free rent during build-out
Abated rent that overlaps TI can ease near-term cash burn. Confirm when rent starts and whether it aligns with construction timing and occupancy.
Options and flexibility
Renewal, expansion, or termination rights add strategic value. Note them separately. They rarely fit into NER, but they can tip the decision.
Downtown Nashville context to keep in mind
- Class A buildings with strong amenities typically show higher face rents and tighter concessions, but often deliver more predictable operating expenses and on-site services.
- Class B and older stock can offer larger TI packages and more free rent, which may produce a lower NER even when the sticker price is similar.
- Sublease availability can create short-term opportunities with furnished space and shorter terms. Compare total occupancy cost and flexibility to your horizon.
The right structure depends on your team size, cash flow needs, and growth plans. NER helps you quantify that tradeoff so you can negotiate with clarity.
Quick checklist for Nashville lease comparisons
Use this punch list before you decide.
- Measurement: confirm RSF, USF, load factor, and the measurement standard.
- Face rent and basis: confirm full-service gross, modified gross, or NNN.
- Term and escalations: detail length, schedule, and any CPI language.
- TI allowance: dollars per SF, scope, who owns improvements, and any repayment triggers.
- Free rent: number of months, when applied, and whether it covers gross or base rent.
- Expenses: current taxes, insurance, and CAM dollars per SF, plus base year or stops.
- Extras: moving allowance, signage, parking, storage, or furniture.
- Timing: rent commencement relative to occupancy and build-out completion.
- Outputs: NER simple, NER NPV with your discount rate, year 1 cost, average annual cash outlay.
Put NER to work in your budget
When you standardize every proposal to RSF and a common expense basis, then fold in concessions and timing, you get a clear net effective rent. With that single number, you can benchmark buildings and negotiate with a target. For finance teams, a side-by-side NPV view adds precision for TI-heavy or longer-term deals.
If you want a clean comparison of Downtown Nashville options or a second set of eyes on your proposals, connect with NEW SOUTH COMMERCIAL for owner-minded, principal-led advice. We can help you normalize offers, model cash flows, and negotiate a lease that fits your timeline and budget.
FAQs
What is the difference between face rent and net effective rent in Nashville office leases?
- Face rent is the quoted price per RSF per year before concessions. Net effective rent spreads the value of TI, free rent, and other credits over the term to show your true cost.
How do I compare a full-service gross quote to an NNN quote in Downtown Nashville?
- Add projected operating expenses to the NNN offer or adjust the gross quote to a net basis so both are on the same expense basis. Then calculate NER for each.
Which method should I use to calculate NER for a Nashville office move?
- Use simple averaging for quick comps and the NPV method for precision, especially on larger TI packages or longer terms. State your discount rate when you report results.
How should I annualize a tenant improvement allowance when evaluating Nashville buildings?
- Straight-line TI dollars per SF over the term for simplicity, or amortize using an interest rate to reflect cost of capital. Be consistent across offers.
Are free rent months or TI more valuable in Downtown Nashville deals?
- It depends on your goals. Free months help early cash flow, while TI reduces upfront build-out spend. Convert both to dollars per SF per year to compare.
Why do RSF and USF matter when touring Nashville offices?
- Landlords quote rent on RSF, which includes a share of common areas. Always convert any USF figures to RSF before comparing rents and concessions.
