If you signed in 2022, your renewal option is the most expensive way to stay
Inland Empire market asking rent jumped 25.3% in 2022, the largest one-year move CoStar has recorded here, and has fallen every year since its 2023 peak. The rent floor buried in a standard renewal option was written for a market that no longer exists.
If you signed in 2022, your renewal option is the most expensive way to stay
A renewal option priced at the greater of fair market rent or the rent you are already paying cost nothing to concede in 2022. On a 250,000 square foot building it is now worth about $4.3 million to the landlord.
Eleven of the forty largest Inland Empire industrial leases signed in the past twelve months were renewals, including the largest lease in the market: Deckers Outdoor at 1,530,944 square feet on Perris Boulevard. Wayfair renewed two Moreno Valley buildings in the third quarter. A very large share of this market’s square footage is being priced at renewal right now, and at renewal the price is often not set by the market.
Nearly every industrial renewal option carries a rent floor. The language is boilerplate: base rent for the option term is the greater of the Base Rent payable by Tenant during the last year of the then current Lease Term, or the Fair Market Rental Rate. Other leases write it as in no event less than the rent in effect the month before the option term begins. For three decades that sentence cost an Inland Empire tenant nothing, because market rent was always the greater number.
2022 is the year that stopped being true. CoStar puts the Inland Empire market asking rent at $0.86 per square foot in 2021 and $1.08 in 2022, a 25.3% jump in twelve months and the largest single-year move in its Inland Empire series. Asking rent peaked at $1.10 in 2023 and has fallen every year since: $1.05 in 2024, $1.03 in 2025, $1.02 today. Big-box product moved further than the average. Buildings over 250,000 square feet now rent near $1.00, asking rent on available space sits roughly 25% below the 2023 peak, and effective rent, once concessions are counted, runs as much as 40% below it.
2021 signing → floor $1.006 ≈ market
2022 signing → floor $1.263 = market +26%
Run the same five-year lease with the same 4% annual bumps off two signing dates twelve months apart. A tenant who signed in 2021 at $0.86 is paying $1.006 in its final year, which is the market. A tenant who signed in 2022 at $1.08 is paying $1.263, which is 26% above it. Same building, same clause, one year apart, opposite answers. Every instinct anyone has about renewal options was formed by the first tenant’s experience.
The floor is only half of it. Read when your option rent gets determined. Many leases fix it only after the tenant delivers its exercise notice, through a landlord quote and then an appraisal if the parties disagree, and the notice is irrevocable. In that structure a tenant commits to renew before it is allowed to see the price, and the floor guarantees the price will not be a market price. Exercise in September, learn in January what you agreed to.
Find the rent formula and read it for a floor: greater of, in no event less than, not less than the Base Rent in effect. Then find out whether the rent is set before or after your notice falls due, and whether that notice can be withdrawn. If the rent is determined afterward, ask for a rescission window, a fixed number of days after the number is set to walk away. Open the conversation fifteen to eighteen months out rather than at the deadline, so the option is still alive as a fallback while you price the open market. Once it lapses you have handed the fallback back, and what you are left with is the holdover clause, usually 150% to 200% of the last month’s rent. If you do go to a market determination, make the definition adjust for the concessions landlords are actually granting. A Fontana tenant took 223,000 square feet in May at $1.08 net with six months free, which is not what the face rent says. Then get a competing proposal in writing. A landlord holding a contractual floor moves on evidence, not on argument.
250,000 SF Inland Empire big box
Assumptions, not survey figures: 60-month lease signed mid-2022 at $1.08/SF NNN, CoStar’s 2022 market asking rent, with 4% annual escalations and a renewal option floored at the last year’s rent. Today’s market for 250,000 SF-plus product taken at $1.00/SF NNN. Five-year renewal, 4% escalations on both paths. Your numbers will differ. The shape will not.
Six months free is what Hanchett Paper took on 223,000 square feet in Fontana in May, on a six-year four-month term at $1.08 net. A renewal option almost never carries free rent. That concession is the part of the gap that never appears in a rent comparison.
Get it Friday mornings
One email a week. Unsubscribe anytime.Each issue costs out one thing Inland Empire industrial tenants are absorbing, with the arithmetic shown. No listings, no market cheerleading.
I read industrial leases across San Bernardino and Riverside Counties. Send me the option language and your expiration date and I will tell you what the floor is worth to your landlord, before your notice date runs.