Loss to lease is one of the most essential metrics in multifamily real estate, and can be defined as the difference between actual rent and market rent. In general, this income is lost by offering incentives to encourage tenants to sign a lease. For accounting purposes, loss to lease is generally recorded as a separate line on an accounting balance sheet.
In most commercial leases, rents are set to increase over time. How often, and by how much they increase is specified in a lease contract’s rent escalation clause. Rent escalation clauses are essential for commercial landlords, since, if rents did not increase, landlords would not be able to keep pace with inflation. In practice, this means they likely be unable to continue renting their properties due increase maintenance and operating costs.