The direct answer
A lease-renewal increase should be modeled as a trade-off between higher rent and the probability of vacancy or turnover. Raising rent increases scheduled revenue only if the tenant renews and pays; a more aggressive increase can reduce renewal probability and create make-ready, marketing and downtime costs.
Calculate the rent increase clearly
Measure both the dollar increase and percentage increase from current rent. Then compare the proposed renewal rent with supportable market evidence instead of treating a target percentage as automatically achievable.
To apply the approach to an editable scenario, use the Rent Increase Calculator. For the neighboring question, explore Net Effective Rent Calculator.
Add renewal probability
Model at least a base case and downside case for tenant retention. The expected value of a higher rent can fall if the probability of turnover rises materially.
Include the cost of a failed renewal
If the tenant leaves, include vacancy, cleaning or repairs, leasing cost and concessions. Compare those losses with the incremental annual rent from the higher renewal offer.
Worked example
Increasing rent from $2,000 to $2,100 adds $1,200 of annual scheduled rent. If the increase causes one month of vacancy and $1,500 of turnover cost, the first-year economics can be worse than a smaller renewal increase.
Common mistakes and limitations
Do not compare renewal options using annual rent growth alone. The probability and cost of turnover can dominate a modest rent increase.
Pure arithmetic. It does not determine whether a rent increase is legally permitted in a specific jurisdiction.
Frequently asked questions
How should a landlord model a renewal increase?
Compare the extra rent with market support, renewal probability and the cost of turnover if the tenant leaves.
Is the highest possible renewal rent always best?
No. A higher rent can reduce retention and create vacancy or leasing costs that offset the increase.
Sources and further reading
The article’s examples are illustrative arithmetic. The references below provide context for operating, valuation or transaction concepts; they do not endorse the assumptions or the calculator.
- IRS — Publication 527 (2025), Residential Rental PropertyRental income and expense concepts; operating/rental expense context.
- Office of the Comptroller of the Currency — Comptroller's Handbook — Commercial Real Estate LendingNOI, direct capitalization, cap-rate valuation and DCF concepts for commercial real estate.
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