Skip to content
CLC Commercial Lease Cost

Guide · Commercial Lease Cost

Total Cost of Occupancy: The Tenant's Real Lease Math

Total cost of occupancy on a commercial lease: 31.4% of TCO is not base rent. How to compute and benchmark TCO across metros for accurate budgeting.

Commercial Lease Cost

All-in TCO: base rent + NNN + CAM + escalations + free rent + TI + broker

Hidden share of total cost of occupancy that’s not base rent: 31.4% on average across US Class A office leases per CBRE Total Cost of Occupancy framework. A tenant signing a $30/SF deal is effectively paying $43.80/SF when NNN, CAM, escalations, and broker commission are loaded in. This is the number that belongs in your business plan.

TL;DR

Total cost of occupancy (TCO) is the all-in cost of leased space over the full term, including base rent, NNN, CAM, escalations, broker commission, and security deposit, less TI allowance and free rent abatement. CBRE’s TCO framework finds 31.4% of TCO sits outside headline base rent for typical Class A office leases. Calculators that show only “monthly rent” miss the question your business plan actually needs answered.

What goes into TCO

Every line item on a commercial lease fits one of these categories:

Cost categories:

Credits:

The all-in TCO sums the cost categories and subtracts the credits.

The 31.4% rule

Per CBRE Total Cost of Occupancy framework, the average Class A office lease loads 31.4% of TCO outside headline base rent. The breakdown:

A $30/SF base rent loaded for 31.4% non-rent cost = $43.80/SF effective TCO. The asking-vs-effective gap.

How to compute TCO for your specific deal

Five-step process:

  1. Sum base rent across term with escalation. BaseRent_total = sum(BaseRent_year_N) for N in 1..term where each year is BaseRent_PSF × RSF × (1 + escalation)^(N-1).
  2. Add NNN and CAM for NNN and modified-gross structures. OpEx_total = (NNN_PSF + CAM_PSF) × RSF × term.
  3. Add broker commission and security deposit. Other = (BaseRent_total + OpEx_total) × broker_pct + Security_deposit.
  4. Subtract credits. Credits = TI_allowance + (FreeRentMonths/12 × Year1Rent).
  5. TCO = (cost categories + Other) - Credits.

For your specific deal, use the pillar TCO calculator with your inputs. The pillar calculator handles all 13 inputs and three lease structures.

Effective rent: the comparison metric

Effective rent ($/SF/yr) = TCO / RSF / term

Use effective rent to compare deals across metros, property types, or structures. Asking rent flatters the deal; effective rent shows it.

In Manhattan Q1 2026, the asking-vs-effective spread is 17% per CBRE Manhattan Marketview. In Portland CBD it’s 25%+. In Miami Brickell it’s near 5%. The spread itself is a market-tightness signal.

TCO in practice: a 5,000 SF Class A SF deal

Hypothetical 5-year deal in San Francisco SoMa, Class A office, 5,000 SF:

The asking rent is $78.40. The effective rent is $84. Despite the substantial concession package (free rent + TI), the effective number is above asking once NNN/CAM and broker are loaded in. This is the math that calculators ignoring NNN/CAM miss.

When TCO matters most

Three decision contexts where TCO is the right number:

  1. Comparing deals across metros. Asking rent comparisons are misleading; TCO is the apples-to-apples.
  2. Modeling lease vs buy. Lease TCO vs buy TCO over 10 years is the right comparison; see Office lease vs buy calculator.
  3. Renewal vs relocation analysis. Effective rent comparison between staying and moving is the decision metric.

What’s NOT in TCO

Three categories that fall outside standard TCO but matter operationally:

  1. Furniture, fixtures, and equipment (FF&E): desks, chairs, computers, copiers. Often $20 to $50/SF tenant capital, not in TCO.
  2. IT infrastructure: cabling, servers, network equipment. $5 to $20/SF, not in TCO.
  3. Move costs: physical move, downtime, change-management costs for staff. Typically $10K to $50K for a small business.

Budget these separately from TCO.

Frequently asked questions

What goes into TCO that isn’t base rent?

NNN (property tax + insurance + structural maintenance), CAM (common area maintenance + admin fee), parking, after-hours HVAC, pre-opening fit-out beyond TI allowance, broker commission absorbed via inflated rent, and operating expense escalations over the term.

How do I model TCO when I don’t know future NNN?

Use a 4 to 6% annual escalation assumption on NNN (matches 2020 to 2025 historicals in major metros). Cap-controllable-expenses clauses limit your downside. Per BOMA Experience Exchange Report, 4 to 6% is the typical range.

Does TCO include utilities?

Only in a full-service-gross lease. In NNN and modified-gross leases, the tenant pays utilities directly to the utility provider, not the landlord, and they’re not in the lease cost. Budget separately. Office utility cost runs $2 to $6/SF/yr depending on metro and use intensity.

What’s the typical TCO loading factor?

Per CBRE’s TCO framework: 31.4% of TCO sits outside base rent for typical Class A office leases. Translation: a $30/SF deal is effectively $43.80/SF. The factor is higher in markets with high property tax (Chicago Cook County) and lower in markets with low operating expense ratios.

Should I include the security deposit in TCO?

Strictly the security deposit is refundable so it’s not a cost. But it’s a cash outlay that has opportunity cost. Some TCO frameworks include the opportunity cost only; others include the gross deposit; we include the gross deposit in our calculator.

How do I compare TCO across NNN vs gross leases?

Compute the all-in TCO for each structure. NNN headline rent is lower but operating expenses are passed through; gross headline rent is higher but operating expenses are bundled. The all-in TCO is the comparable metric. Our pillar calculator handles all three structures.

Does TCO include parking?

Standard TCO models include parking only if it’s bundled in base rent or CAM. Separately metered parking ($150 to $450/space/month in major metros) is typically out-of-TCO. For a 50-employee tenant in Boston, parking can run $150K to $270K annually, material to total occupancy cost.

What’s the most-overlooked TCO line item?

The buildout overage above TI allowance. For a Class A office buildout at $130/SF with $80/SF TI, the tenant owes $50/SF out of pocket, $250K on a 5,000 SF deal. Many tenants treat this as separate from TCO; it’s part of the all-in cost of occupancy.

Sources

  1. CBRE Total Cost of Occupancy accessed 2026-05-02
  2. BOMA Experience Exchange Report accessed 2026-05-02
  3. Cushman & Wakefield Marketbeat (US) accessed 2026-05-02

Not financial or legal advice. Estimates based on publicly available market data and broker reports. Commercial real-estate is highly local and deal-specific. Consult a licensed commercial real-estate broker and a real-estate attorney before signing any lease.