Face rent is the wrong number

Most lease deals get reported on face rent. It’s the number on the cover sheet, the number that shows up in market evidence, the number agents quote when they’re benchmarking. It’s also, in a market with heavy incentives, close to fiction.

Take a five-year deal at $400/sqm face. Twelve months rent-free. $150/sqm fit-out contribution. On paper, that’s $400. On the lease NPV, it’s closer to $310. Three months later, when someone uses the $400 as evidence on the building next door, the error compounds.

This matters in three places.

The first is rent reviews. Market evidence is collected on face. If you’re the tenant in a CPI-or-market clause and your landlord’s valuer is pricing comparables at headline, you’re paying for incentives that other tenants got and you didn’t.

The second is investment sales. A buyer pricing a cap rate against $400/sqm passing income is paying for income that isn’t really there. The vendor knows. The agent knows. The valuer should know.

The third is the rent roll itself. Owners who report on face rent across a portfolio are reporting on an income line that doesn’t survive the next renewal.

Effective rent is harder to calculate. It’s also the only number that means anything. If you’re signing, renewing, valuing, or buying, ask for it. If nobody can produce it, that tells you something too.