In rent escalations modeling, which approach best captures multi-year horizon dynamics?

• A. Use flat growth to all rents.
• B. Use baseline rent growth assumptions and vacancy shifts, applying annual escalators to in-place rents and market rents for rent-up periods, and consider ceded concessions.
• C. Ignore vacancy and only adjust by market rents.
• D. Adjust rents randomly each year.

Answer: (B)

Modeling rent escalations over multiple years requires separating rents that come from existing tenants (in-place rents) from rents that new tenants will pay (market rents), and tying changes to occupancy and lease events. In-place rents continue and often escalate according to contract terms, while vacancies lead to rent-up periods where the rent is reset to market levels. Applying annual escalators to both in-place rents and market rents during rent-up captures year-by-year growth as leases roll and new tenants come in. Adding ceded concessions reflects temporary rent reductions or free rent that can affect cash flow in early years but may be amortized over the lease term. This approach provides a dynamic, realistic forecast of rent revenue across a multi-year horizon, unlike flat growth which ignores turnover, or ignoring vacancy or random changes which miss the structural drivers of rental income.