Why “Market Rate” Is an Illusion

If you’ve ever leased space, you’ve probably heard this phrase: “That’s the market rate.”

It sounds official—like there’s one universally fair number and you’d be unreasonable to push back. But here’s the reality: there isn’t a single “market rate.” There’s a range, and where you land within that range depends on the leverage you create—or don’t.

The Problem with “Market Rate”

When someone says, “This is market,” what they usually mean is, “This is the deal I believe makes sense.” The challenge is that the way “market” is presented doesn’t always reflect the full picture.

How Is Market Rate Determined in Commercial Real Estate?

Here are a few common ways numbers can be framed:

• Asking vs. Effective Rent – The “market” rate often refers to the asking rate—the sticker price. But once you account for free rent, tenant improvement allowances, and other concessions, the true number (effective rent) can look very different.
  
  
• Different Comps, Different Stories – Depending on whether you pull averages from Scottsdale, Chandler, Class A, or Class B buildings, the “market” can shift significantly.
  
  
• Owner Metrics vs. Occupier Priorities – Owners think in terms of returns and cap rates. For a business leader, the focus should be on monthly costs, flexibility, and the impact on operations. 

So when you hear “market,” remember: it’s not fact—it’s framing.

How Can Tenant Representation Help You Evaluate Market Rate?

This is why I believe so strongly in tenant-only representation. A dedicated advocate isn’t balancing the interests of both sides—they’re 100% focused on ensuring you get the best terms possible.

Here’s what that looks like in real life:

• Real Intel – Providing an objective view of the market, free from any fiduciary responsibilities.
• Leverage – Creating competition for your tenancy.
• Protection – Ensuring you’re not exposed to hidden costs, rigid terms, or unfavorable clauses buried in the fine print. 

With an advocate, you move from reacting to someone else’s version of “market” to actively shaping the outcome that best serves your company.

Market Rate Is a Starting Point, Not the Final Answer

“Market rate” isn’t a law—it’s a perspective. The companies that win are those that dig deeper, ask better questions, and negotiate with leverage.

That’s how real estate shifts from being just a cost of doing business to becoming a true advantage for your company.

FAQs About Market Rate in Commercial Real Estate

What Does “Market Rate” Mean in Commercial Real Estate?

Market rate is the range of rental rates and terms being achieved for comparable properties. It can vary based on location, property type, lease structure, concessions, and market conditions.

Is Asking Rent the Same as Market Rate?

No. Asking rent is the advertised rate, while the effective rate accounts for concessions such as free rent, tenant improvement allowances, and other negotiated terms.

How Can a Tenant Determine Whether a Proposed Lease Rate Is Competitive?

Compare the proposed terms against current availabilities, comparable transactions, concessions, and competing properties. Evaluating multiple alternatives can provide a clearer picture of the market and strengthen negotiating leverage.