Most owners count a vacant month as one month of lost rent. It is closer to three. An empty suite stops paying you and starts costing you on the same day, and the bill for filling it again lands, in a lump, on the months it sat dark. The rent is the only one of the three that shows up on the statement as a vacancy. The other two are filed under something else, which is why they get missed.
This is the fifth article in a series on how to read your own building. Earlier articles covered why NOI is not your cash flow, asking rent against effective rent, operating expense per square foot and the property tax notice. This one puts a number on the thing all four of them keep circling: the cost of a space with nobody in it.
This is the part everyone counts. The suite paid a certain amount a month; now it pays nothing. Multiply by the months it is dark.
Two refinements. Count it at the rent the tenant was actually paying after concessions, which is the effective rent from the second article, not the asking rent on the flyer. And count it from the day the tenant's obligation ended, not the day you noticed. The gap between those two dates is often a month on its own.
On a triple-net or modified-gross lease the tenant reimbursed its share of property tax, insurance and common-area costs, and paid its own utilities. When the suite empties, none of those costs go away. The county does not reduce the assessment because a suite is dark. The insurer does not reduce the premium. The parking lot lights stay on. In Florida the air conditioning in an empty suite has to keep running through the summer, or the humidity will find the drywall before the next tenant does.
All of that now comes out of your pocket instead of the tenant's, and it appears on the operating statement as a higher expense, not as a vacancy. If you built the per-square-foot sheet from the third article, you already have the number: the suite's share of operating expense per square foot, times its square footage, times the months it is dark.
One more line here is easy to miss. Many commercial property policies carry a vacancy clause that narrows coverage once a building, or a large share of it, has been empty for a set period, often 60 days. Read yours. A long vacancy can quietly change what you are insured for, which is where the next article in this series picks up.
Filling the suite costs money: a commission to the brokers, an improvement allowance to the tenant, and usually some months of free rent to close. Those arrive at signing, and on the books they attach to the new lease. In practice they are the price of the vacancy. The space went dark, and every month it stayed dark the eventual bill was accruing, whether or not you had a tenant in view.
This line grows with time. The longer a suite sits, the more it takes to fill: the market reads a long vacancy as a signal, the eventual tenant negotiates against it, and the allowance and the free rent both get larger. A suite empty for a year has often lost its condition as well as its tenant, so the allowance is fixing neglect before it is building anything.
The figures are illustrative, not a suite we manage.
A 5,000-square-foot office suite. The tenant in place pays $24 per square foot a year, $10,000 a month, and reimburses its share of operating costs, which run $8 per square foot, or about $3,300 a month for that suite. The lease is expiring, and the tenant has asked for a lower rent to stay. Two paths.
Renew. You agree to five more years at $23 per square foot, one month free, a $5-per-square-foot paint-and-carpet allowance, and a 3 percent renewal commission.
Re-lease. You hold at your asking rent of $26. The tenant leaves. The suite sits six months. A new tenant then signs five years at $26 with three months free, a $20-per-square-foot improvement allowance and a 6 percent commission.
The cost of the six dark months, line by line:
Total: about $197,000, or about $32,900 for every month the suite sat dark. Against a rent of roughly $10,000 a month, each dark month cost a little more than three months of rent.
The new lease does carry a higher face rent, $26 against $23. On 5,000 square feet that is $15,000 a year, and at that rate the higher rent takes about thirteen years to earn back what the vacancy cost, on a lease that runs five. The rent roll will show $26 and call it a win. The bank account will not.
Run the number before you hold out for asking. On a renewal the math usually votes for the tenant you have: a slightly lower face rent with no dark months, no build-out and a smaller commission is very often a higher effective rent than a new lease at asking, from a tenant whose payment history you already know.
Then put two numbers next to every suite in the building: days vacant, and what a dark month costs for that suite, using the three lines above. Once the second number is written down, the first one gets a great deal more attention, and the renewal conversation starts earlier. How much earlier is the subject of a later article in this series.
Gain Property Group manages office, retail, industrial and multifamily property across Hillsborough, Pinellas, Pasco, Polk, Manatee and Sarasota counties. We also own commercial buildings ourselves, in other markets, so we read these numbers the way an owner does.
If you own commercial property in Tampa Bay and want the cost of every dark month in your building put in writing, request a free management assessment. In writing, no obligation, whether or not you change managers.
This article is general information about commercial property operations. It is not investment, legal or tax advice.