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The food index was unchanged over the last year while the energy index declined 9.2 percent.Inflation is not what it used to be. In the real estate sector, … Louisiana Commercial Realty, LLC President Robert Hand, MBA, CCIM, SIOR is highly qualified as an expert in commercial real estate. It is best that landlord and tenant agree the CPI is for the previous 12 months and applied to the last rent payment. At the second stage, aggregate indexes are produced by averaging across subsets of the 8,018 CPI item–area combinations.Percent changes for periods other than 1 year often are expressed as annualized percentages. The Base Index is that value published immediately prior to the lease Commencement Date.In order to accurately calculate the Rent LLCrease, the CPI table will need to be referenced each year through the The first CPI increase is scheduled to occur on 6/1/15 by comparing the Base Index value (194.6) with the value published immediately prior to the date of the scheduled increase (201.5). The index for all items less food and energy rose 2.3 percent for the 12 months ending August. We’ll start with a $100,000 a year for calendar year 2010 and a CPI rent adjustment provision like the one above. Let’s consider this formula:The $710.00 represents the increase caused by the change in CPI so, effective 06/01/2015, the annual base rent would be $20,710 and would be up for re-calculation on 06/01/2016.It’s important to rember that the majority of recently executed leases used fixed rent steps (i.e., 2% / year or $0.50/sf/year) as opposed to CPI adjustments, thereby reducing the amount of time needed to determine the rent adjustment.That’s it for Consumer Price Index and how it gets used to adjust Base Rent in Commercial Real Estate. To help understand CPI increases, let’s consider this example:The Initial Base Rent of the lease shall be increased on each June 1st by the increase in CPI over the Base Index. These are calculated using the standard formula for compound growth:The CPI represents all goods and services purchased for consumption by the reference population with all expenditure items divided into more than 200 categories, arranged into eight major groups. To help understand CPI increases, let’s consider this example: Major groups and examples of categories in each are as follows:The Bureau of Labor Statistics, under the Department of Labor, released Some August prices increased while others decreased, which is why the CPI can be misleading. The indexes increased for motor vehicle insurance, apparel, communication, and tobacco; however, the indexes decreased for used cars and trucks, household furnishings and operations, recreation, and airline fares.These numbers are only for the month of August, and leases should use the annual number. With these numbers, we now know that the tenant will be required to pay the landlord Rent of $20,710.00 annually. CPI Property Group is the leading owner of income generating real estate in Czechia, Berlin, and the CEE Region. It Is Clear How The Adjustment Is Applied- The CPI adjustment can applied to a lease payment monthly, quarterly, or annually, but be clear about what period of CPI is used. If you would like more information about commercial real estate in general, download the free CLF Cheat Sheet available beneath this article. A lease is an agreement between two parties, and you should revise it to include language that works for you. It went to 2%. The all items index rose 1.1 percent for the 12 months ending August. Remember also to stop by next Wednesday when I’ll introduce the next topic in the Commercial Lease Fundamentals series, Lease Options.This field is for validation purposes and should be left unchanged.This field is for validation purposes and should be left unchanged.Copyright © Realogic Analytics LLC. Building in a CPI adjustment can still make a difference in a long term lease, as shown in the table below which compares a 1 percent CPI to a 2 percent CPI adjustment over a 25 year time frame. The government uses CPI to fairly increase the amounts of benefits it pays to certain people. There are several different indices based on the following factors:So, why is CPI is important for Commercial Real Estate? The rental under this lease shall be four ($4.00) dollars per square foot for the first twelve (12) months, with annual adjustments tied to the Consumer Price Index (published by the Bureau of Labor Statistics, All Urban Consumers, Current Series, Index) for the previous calendar year period.The CPI is calculated in two stages.

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