When rentals for a particular asset, micro-market or city are analyzed, traditional platforms talk about the quoted rents. However, quoted rents can significantly vary as these are not the “transacted” rents and can include a lot of irrational premiums.
The most appropriate measures of rentals for any asset or region are two – Market rents and Passing rents. Average annual rent could be a confusing term for many, which is why it is important to understand the difference between market rent and passing rent.
What does passing rent mean in real estate?
Passing rent of an asset is the weighted average rent which all tenants in that asset are paying today, irrespective of when their tenancy started in the asset. When landlords or brokers are looking for fair rental value, it is important to look at passing rentals.
What does market rent mean in real estate?
Market rent of an asset is the weighted average rent which all tenants in that asset are paying today, for only those tenants which either signed a new lease or a renewal lease in the current year. It does not include the weighted average rentals of any tenant whose lease would have commenced earlier than the current year. Market rent estimate is often not calculated in the way it should be. One way to do it is to bifurcate it into passing and market rentals.
Take a look at the passing vs. market rent for Gurgaon from 2017 upto 2022, documents accessed through CRE Matrix.
The average passing rent for Gurgaon in 2017 was Rs. 74.3 per Sq.ft in a month as opposed to the market rent that was Rs. 79.3 per Sq.ft on a monthly basis. The trend for the average passing rent to be lower than the market rent continued in 2018, 2019 and 2020 as well. In this case, the market had shifted towards the landlords as new tenants would have to pay more rent according to the rates charged by the market.
The pandemic had a serious impact on the average passing rent and the market rent. In 2021, the average passing rent was Rs. 90.4 while the market rent was only Rs. 81.6. In 2022, so far the average passing rent is Rs. 93 per sq.ft in a month in Gurgaon as opposed to the market rent being Rs. 81.9 Rs per sq.ft per month. In this scenario, the market had titled towards the tenants as voluntary exits puts pressure on the landlords. Hence, as rentals declined a bit, the market rentals had gone below passing rents in some regions.
CRE Matrix has analyzed lakhs of rental documents across India and has assessed the market rent and passing rent for these commercial premises. CRE Matrix is the country’s most preferred authentic analytics platform that lets stakeholders from various sectors evaluate the passing vs. market rent and so much more.
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