In commercial real estate, “price per square foot” has long been the go-to metric for evaluating leases. It’s simple, familiar, and widely used.
But there’s one big problem:
It doesn’t tell you whether a tenant can actually afford the rent.
That’s where Industry Rent-to-Revenue Ratios (I-RRRs) come in — the most powerful, yet underused, benchmark in CRE today.
What is an Industry Rent-to-Revenue Ratio (I-RRR)?
An I-RRR measures the percentage of revenue that businesses in a specific industry and market typically spend on rent.
Example:
If restaurants in a particular metro area average an I-RRR of 6%, that means rent generally accounts for 6% of their gross sales. A proposed lease at 9%? That’s a red flag for sustainability.
Unlike generic market comps, I-RRRs are both industry-specific and location-specific, giving you true apples-to-apples insight into what’s financially sustainable.
Why I-RRRs Beat Price Per Square Foot
Price per square foot tells you how much space costs.
I-RRRs tell you whether that cost works in the context of a business’s actual operations.
Price per square foot alone:
- Doesn’t factor in a tenant’s industry.
- Ignores market-specific revenue realities.
- Can mislead decision-making if rent looks “cheap” but exceeds sustainable ratios.
IRRRs:
- Align rent expectations with industry norms.
- Reveal market-specific trends that comps can miss.
- Allow CRE pros to speak the language of business performance, not just property cost.
Why This Matters Across CRE Roles
I-RRRs aren’t just for one segment of the industry — they’re valuable across the board:
- Tenant Representatives use them to set realistic budgets and win rent concessions.
- Landlord Representatives use them to target industries that can sustain asking rents.
- Corporate Real Estate Managers use them to optimize portfolios and avoid high-cost locations.
- Developers & Investment Analysts use them to underwrite projects with realistic rent assumptions.
- Property Managers use them to spot tenant risk before defaults happen.
The Risk of Ignoring I-RRRs
CBC Capital Advisors calls it “the ratio that rules retail,” and for good reason:
Without I-RRRs, CRE deals are built on partial information.
The result?
- Tenants overcommit and struggle to pay rent.
- Landlords see higher turnover and vacancy costs.
- Investors and developers miscalculate ROI projections.
A deal that looks great on paper can quickly turn into a liability when rent eats up an unsustainable share of revenue.
Using I-RRRs in Practice
- Pre-Lease Planning
Use I-RRR data to set budgets before a property search begins — eliminating spaces that will strain operations.
- Lease Negotiations
If proposed rent exceeds industry norms, present I-RRR data as a third-party benchmark to justify reductions or concessions.
- Portfolio Review
Compare current locations to benchmarks to identify high-cost outliers and potential renegotiation opportunities.
- Market Entry Analysis
Evaluate I-RRRs in new markets to avoid expansion into areas with unsustainable rent levels for your target industries.
The Bottom Line
Price per square foot might get you in the door, but Industry Rent-to-Revenue Ratios get you the right deal — one that’s sustainable, defensible, and aligned with real market performance.
If you want to:
✅ Negotiate with confidence
✅ Select sites that perform long-term
✅ Reduce tenant turnover risk
✅ Improve ROI forecasting
…you need I-RRRs in your toolkit.
📊 Get industry- and market-specific Rent-to-Revenue data in minutes.
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