Your 4% escalation is compounding into a market that fell 30%
An escalation is the one clause that charges you more for doing nothing. Signed into the 2023 peak at 4% a year, it has carried a tenant 62% above what the same building leases for today, and the lease offers no moment to raise it. The moment has to be made.
Your 4% escalation is compounding into a market that fell 30%
Inland Empire triple-net industrial leases signed in 2023 started at a median $1.46 a foot and carry a median 4% annual step. The same comps signed this year start at $1.015. A 2023 tenant is now paying about 62% above what its own space would lease for today, and the next lease event is two years away.
Inland Empire asking rent peaked in 2023 and has fallen every year since. Almost every lease signed into that peak carries an annual escalation that has been working in the opposite direction the whole time. The two lines have been pulling apart for three years, and because an escalation is automatic, nothing in the lease ever asks the tenant to look at it.
Here is what that looks like in our own comp file. These are 1,427 Inland Empire industrial leases quoted on a triple-net basis, grouped by the year the lease commenced. Gross and modified-gross deals are excluded so the rates are comparable to one another.
2021 136 $0.750 3.00%
2022 192 $1.300 4.00%
2023 197 $1.460 4.00%
2024 238 $1.245 4.00%
2025 256 $1.100 3.50%
2026 262 $1.015 3.50%
Three quarters of everything signed in 2022 and 2023, 76% of 384 triple-net deals, carries an escalation of 4% or more. That was the right number to agree to at the time. Rent had just moved 25% in a single year and a 4% bump looked like protection against more of the same. It is now the most expensive sentence in the lease.
Run the median 2023 deal forward. A lease that started at $1.46 with 4% annual steps is at $1.642 in its fourth year, which is this one. The same space signs today at $1.015. The tenant is paying 62% above market with no event on the calendar that forces anyone to discuss it, because the next lease event is expiration and expiration is still two years out.
That is the part worth sitting with. A renewal option, a termination right, an expansion, all of these are moments the lease hands you. An escalation running against a falling market is the opposite: a cost that grows precisely because nothing is happening. Every month of patience makes it worse by about a third of a cent a foot, and a tenant who waits for the lease to tell it to act waits two more years and pays for the privilege.
Look at when this cohort rolls. In the same file, 625 Inland Empire industrial leases expire in 2027 and 575 in 2028, the two largest years on the board, and the 2022–23 triple-net cohort alone puts 149 expirations into 2027 and 129 into 2028. An owner holding one of those is carrying a rent it almost certainly cannot replace, on a clock. Its asset is worth more with a lower rent running for seven more years than with a peak rent rolling in eighteen months into a market absorbing that wall. That is the argument that moves an owner, and it is an argument about the owner's position rather than the tenant's hardship. Bring it before the broker community starts calling about 2028 space, which is roughly now.
The instrument is a blend-and-extend. You reset the rent toward market today and pay for it with term. The above-market remainder gets folded into a longer schedule rather than forgiven, which is what makes it something a landlord can actually sign, and both sides stop pretending the 2023 number is going to be collectible in 2028.
Price the two paths side by side before you call: what you owe over the remaining term under the current schedule, and what the same space costs on a new deal today. The gap is your negotiating budget, and it is usually larger than anyone expects. Then ask for the escalation to come down with the rate. Deals signed in 2025 and 2026 are clearing at 3.5%, not 4%, and a blend that fixes the rate while leaving a 4% step in place rebuilds the same problem on a new base. Ask for the concession package too. New deals in this market carry free rent; a blend that moves only the headline rate quietly hands that back. And do not open it at the deadline. Eighteen to twenty-four months out is when the owner still has a problem you can solve. At twelve months you are just a tenant with nowhere to go, and the leverage has crossed the table.
100,000 SF, signed 2023, two years left
Medians from 1,427 Lee & Associates – Ontario triple-net industrial comps, grouped by lease commencement year, pulled September 29. This is not a same-store index: the mix of submarket, size and building quality shifts between years, so read the direction and the magnitude rather than the third decimal. A 60-month term signed in 2023 at the $1.46 median with 4% annual steps. Today's market taken at the $1.015 median of leases commencing in 2026. Your numbers will differ.
The escalation adds roughly $0.06 per foot per year on its own. Against a market that has fallen in each of the last three years, the two move apart faster than either one moves. See the full dashboard.
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Information is from sources deemed reliable but is not guaranteed. Nothing here is investment, tax, or legal advice.
