Investing metrics
Reversionary rent
The market rent a property is expected to produce after its current below-market lease resets, is reviewed, or expires.
Glossary
Investing metrics
What is reversionary rent?
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Reversionary rent is a valuation estimate of the rent that may apply when an existing lease reaches a review point or ends. It matters when the rent being paid today—often called passing or contract rent—is below the property’s current market rent. The difference represents potential future income, not income the owner receives now.
Valuers do not simply replace today’s rent with the higher figure. They consider when the reset can actually occur, the lease terms, market evidence, costs, vacancy risk, and the time value of money. The phrase is most common in UK and commercial-property valuation, and it is different from a reversionary lease or the owner’s legal reversionary interest.
A term-and-reversion example
Assume a shop produces $60,000 of passing rent, credible current evidence supports $72,000 of market rent, and the lease cannot reset for another 18 months. The $12,000 gap is not current income. A valuation has to preserve the lower contracted cash flow through the review date, then model the later rent with the review clause, collection risk, downtime, incentives, leasing costs, and discounting that actually apply.
If the lease caps an increase, the tenant has a break right, or the space needs work before reletting, the modeled reversion can be lower or later than the headline market-rent comparison. Conversely, a current rent above market can create a negative reversion at expiry. The direction and timing both matter.
What a small landlord can use it for
Reversionary rent helps explain why two assets with the same current rent can have different values or refinance stories. One may be able to reset soon on clear evidence; the other may remain bound by a long term, review cap, or weak demand. The useful artifact is a lease-by-lease schedule showing when each rent can change and what evidence supports the modeled amount.
Do not use reversionary rent as a current rent-roll field or guaranteed rent forecast. Keep contract rent in the operating schedule, put the modeled future amount in a clearly labeled underwriting scenario, and update it when a lease event or new comparable changes the evidence.