What is the Diff. Between Market Rent and Economic Rent?

[nachocheesefries]

Can anyone clarify the difference between market rent and economic rent?

 

[Ken B]

It's the same as the difference between windows and fenestration.


Both terms describe the same thing. However, one of the terms is more widely used and understood.

 

[Pittsburgh Pete]

It's the same as the difference between windows and fenestration.


Both terms describe the same thing. However, one of the terms is more widely used and understood.

What he said!!!!! Synonymous!

 

[nstanbru]

Can anyone clarify the difference between market rent and economic rent?

IMO, market rent would be the estimated income for a property based on a comparison with rents generated by similar properties. Economic rent would be the income necessary to generate a certain return. Maybe not exactly, but sort of like the difference between "market value" and "investment value".

 

[Ken B]

Bzzzz...no cigar for you! See the 4th Edition, page 92.

 

[Calvin the Airedale]

Can anyone clarify the difference between market rent and economic rent?

Economic rent is always Market Rent squared muliplied by the reciprocal of market rent.

 

[nachocheesefries]

Hmmmmmmmm........my client has asked for market rent on a space within a shopping center being leased by the federal government where the lessor is paying all utilites etc. on behlaf of the lessee(the government). The client has supplied a sample appraisal on a similar type deal where the appraiser just added the Taxes, Insurance, building reserves, utilites, lawn, trash, etc to a base lease amount. The base lease amount was derived from comparable rentals where utilites, etc were NOT paid by the lessor. The other appraiser's math is: Base amount(per sf) + expenses = Total Economic Rent(per sf), which is what they calculated the lease amount from to arive at the market value of the leaseable interest of the Subject property. Basically, they just added the expenses being paid by the lessor directly to the market rent indicated by the comparable rentals(that did not have expenses paid).

Wouldn't it be best to find at least one government rental to help base adjustments off of and adjust the comps, not the subject? Or is the quick and dirty more reliable?

 

[Pittsburgh Pete]

Bzzzz...no cigar for you! See the 4th Edition, page 92.

I'll save you the effort--however, for future reference a copy of the Dictionary of Real Estate should be afixed to the corner of your desk for just such an occasion.

The dictionary states that "economic rent" is a "term often used as a synonym for "market rent." However, "in economics, the surplus payment in excess of the amount necessary to justify the development of a property or to attract any factor of production into an enterprise."

Ken won't give you a cigar--I say you qualify for 1/2 a stogie. You may have had a flashback to a college econ course and as a result, you are not close in the appraisal arena but do warrant a stogie as an economist.

 

[Pittsburgh Pete]

Hmmmmmmmm........my client has asked for market rent on a space within a shopping center being leased by the federal government where the lessor is paying all utilites etc. on behlaf of the lessee(the government). The client has supplied a sample appraisal on a similar type deal where the appraiser just added the Taxes, Insurance, building reserves, utilites, lawn, trash, etc to a base lease amount. The base lease amount was derived from comparable rentals where utilites, etc were NOT paid by the lessor. The other appraiser's math is: Base amount(per sf) + expenses = Total Economic Rent(per sf), which is what they calculated the lease amount from to arive at the market value of the leaseable interest of the Subject property. Basically, they just added the expenses being paid by the lessor directly to the market rent indicated by the comparable rentals(that did not have expenses paid).

Wouldn't it be best to find at least one government rental to help base adjustments off of and adjust the comps, not the subject? Or is the quick and dirty more reliable?

Boils down to a difference in lease terms. Office properties (at least in my area) are gross leases with the landlord paying the operating expenses. Government agencies typically ask for net, triple net, or absolute net leases. As a result, expenses are deducted from the Market "gross rent" to arrive at a rate agreeable to the gov't, be it net, triple net, absolute net, etc. Obviously comparison of like-structured leases would be preferable. Kind of six of one, 1/2 dozen of another.

 

[farmguy]

The last time I thought about that question was 1985 right before my oral exam to get out of a graduate real estate program at Texas A&M. It dawned on me I didn't know the difference. I asked a prof in the department and told him I was in a hurry. He spent 15 minutes to finally say he didn't think there was any difference. He said I know what graph they will ask you to draw and you will have to label it. "just write rent" he said they never ask the difference.