Leases raise rent over time by a fixed annual escalation — a percentage compounded each year. rent × (1 + rate)^years projects any future year’s rent.
The example
$1,500 rent, 3%/yr, 3 years.
| A | B | |
|---|---|---|
| 1 | Item | Value |
| 2 | 1500 × 1.03^3 | — |
| 3 | Year 3 rent | → ~$1,639 |
The formula
The formula:
How it works
How it works:
- Compound the increase:
base × (1 + rate)^years, not simple addition. - For year 1 use years = 1; the base year is years = 0.
- A step-up schedule with different rates per year chains the factors instead.
- Total lease value sums each year’s annualized rent across the term.
Escalations compound — they don’t add. A 3% annual bump for three years is not 9%; it’s 1.03³ = 9.27%, because each year’s increase is applied to the already-raised rent. Over a 10-year lease the gap between compounding and simple addition is substantial, so project rent with the power form and sum the term to value the lease correctly.
Try it: interactive demo
Base rent, annual increase, years.
Variations
Total increase %
Over the term:
Annual rent that year
× 12 months:
Next year from current
One step:
Pitfalls & errors
Compound, not add. Use the power form, not rate × years.
Year indexing. Base year is 0; year 1 is one increase.
Step-ups differ. Chain factors if rates vary by year.
Practice workbook
Frequently asked questions
How do I calculate rent escalation in Excel?
Why not just add 3% per year?
How do I value the whole lease?
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