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Trended rents, sometimes called trended forward rents, are the projected future rental rates used inside a financial model, where each year's rent is grown by an assumed annual rate across the hold period. That rate usually reflects expected market rent growth or contractual lease escalations. Trended rents stand in contrast to untrended rents, which hold income flat at today's level in today's dollars.
What trended rents mean
When an analyst builds a cash flow projection for a property, every future year needs a rent assumption. Trended rents answer the question of where those rents are headed. Rather than assuming a tenant pays the same rate in year five that they pay today, a trended model grows the rent each year by a chosen percentage, so the projected income line rises over the hold period. The growth might come from contractual bumps written into a lease, such as a fixed three percent annual escalation, or from a view that the broader market will support higher rents when space rolls to a new tenant.
The opposite approach is to leave rents untrended. An untrended projection freezes income at the current rate and carries that flat figure across every year of the model. Because it credits the deal with no future growth, an untrended view is the more conservative lens. The choice between the two is not a matter of one being correct and the other wrong. They answer different questions. Trended analysis shows what an investor expects to earn if their growth thesis plays out, while untrended analysis shows how the investment stands on the rents that exist right now.
The distinction matters most in the early years of ownership and in any analysis that compares the cost of an investment to the income it produces. A small annual growth assumption, compounded across a five or ten year hold, can move projected income meaningfully. Understanding which version of rent a number reflects is the difference between reading a projection accurately and being misled by it.
Why trended rents matter in commercial real estate
Trended rents sit at the center of how acquisitions and developments are underwritten, because they shape almost every downstream return metric. Net operating income, cash flow, the projected sale price at the end of the hold, and the internal rate of return all depend on the rent assumptions feeding the model. A modest change to the annual growth rate ripples through every year and compounds into a materially different outcome by the end of the projection.
This influence is exactly why trended rents deserve careful handling. Because the growth rate is an assumption rather than a fact, it can be tuned. An aggressive growth rate can make a marginal deal appear to clear an investor's return threshold, even when the property would not get there on its current income. That is not necessarily dishonest, since rents do tend to rise over long periods, but it does mean a projection built on optimistic trending can flatter a deal that has little margin for error.
The stakes look different depending on the strategy. In a stabilized acquisition with long leases and fixed escalations, the trended rents are largely contractual and carry less judgment. In a value-add or development play, where much of the projected income comes from leasing vacant space at future market rates, the growth assumption does heavy lifting and warrants more scrutiny. A developer comparing trended and untrended yield on cost is testing precisely this point: how much of the expected spread over the cost of capital exists today, and how much depends on rents the market has not yet delivered.
For an owner or lender reviewing a model someone else built, knowing whether the income line is trended or untrended is essential context. Two projections can look very different and both be reasonable, simply because one assumes growth and the other does not.
How trending works
Trending is the mechanical process of applying a growth rate to a starting rent across the years of a projection. The method is simple arithmetic, but the inputs behind it carry the real judgment.
Choosing the starting rent
Every trended projection begins with a base rent for each unit or suite. For occupied space, that base is usually the in-place contractual rent. For vacant space or space expected to roll during the hold, the base is the current market rent, the rate a new lease would command today. Getting this starting point right is critical, because every future year compounds off it.
Applying the growth rate
From the base, each subsequent year's rent is grown by the assumed rate. If the rate is constant, the rent compounds: a base of one hundred grown at three percent reaches roughly one hundred three in year two, one hundred six in year three, and so on. Many models vary the rate by year, applying stronger growth in the near term and tapering it toward a long-run average, which reflects the reality that no market grows at the same pace forever.
Contractual escalations versus market growth
Two different mechanisms drive trended rents. Contractual escalations are the rent bumps written directly into a lease, such as a fixed annual increase or an adjustment tied to an index. These apply while a tenant remains in place and are reasonably certain. Market growth applies when space rolls to a new tenant and is re-leased at the prevailing market rate, which the model trends forward from today. A complete projection blends both: in-place leases follow their contractual path until expiry, then reset to a trended market rent for the next tenant.
Trended versus untrended side by side
To see the effect of a growth assumption, analysts often run the same model twice, once with rents trended and once with them held flat. The untrended version isolates the return available on today's economics, while the trended version layers in expected growth. The gap between the two return figures is a direct measure of how dependent the deal is on rent growth that has not yet occurred.
Key takeaways
- Trended rents grow each year by an assumed rate, while untrended rents hold income flat at today's level in today's dollars.
- The growth rate is an assumption and a key sensitivity, so an aggressive rate can make a thin deal look stronger than it is.
- Reviewing trended and untrended returns together shows how much of the projected return depends on future growth versus current income.
What drives the growth rate
The single most important input in a trended projection is the growth rate itself, and there is no universally correct figure. Disciplined teams build the assumption from several sources rather than picking a round number.
- Historical market rent growth, which establishes a baseline for how rents in the submarket have moved over prior cycles and through different economic conditions.
- Current leasing comparables, the rates and concessions on recent deals nearby, which signal where the market sits today and where momentum is heading.
- Supply and demand dynamics, including the construction pipeline, absorption trends, and vacancy, since new supply can suppress growth while constrained inventory can accelerate it.
- Contractual escalations in existing leases, which set a near-certain floor for in-place income regardless of where the open market moves.
- Asset class and location, because rent growth behaves differently across office, retail, industrial, and multifamily, and across primary and secondary markets.
- Inflation expectations, which inform both index-linked escalations and a long-run view of how nominal rents drift upward over time.
Because each of these inputs carries uncertainty, the growth rate is treated as a sensitivity rather than a fixed truth. Strong underwriting tests a range of rates, often a conservative, base, and optimistic case, so the decision rests on how the deal performs across plausible outcomes rather than on a single hopeful number.
A worked example
The clearest way to understand trending is to watch a rent grow year over year. The table below trends a starting rent of fifty dollars per square foot forward at an assumed three percent annual growth rate, alongside the untrended figure that holds flat. The numbers are illustrative and rounded for clarity.
| Year | Trended rent at 3% growth ($/sf) | Untrended rent ($/sf) | Difference |
|---|---|---|---|
| Year 1 | $50.00 | $50.00 | $0.00 |
| Year 2 | $51.50 | $50.00 | $1.50 |
| Year 3 | $53.05 | $50.00 | $3.05 |
| Year 4 | $54.64 | $50.00 | $4.64 |
| Year 5 | $56.28 | $50.00 | $6.28 |
By the fifth year the trended rent has climbed more than twelve percent above its starting point, while the untrended figure has not moved at all. On a single suite the gap looks small, but multiplied across an entire building and compounded into the projected sale price, that difference reshapes the headline return. The example also shows why the choice of growth rate matters: had the assumption been five percent rather than three, the year five rent would sit meaningfully higher, and the projected return would look stronger on paper without any change to the property itself.
Best practices
Teams that handle trended rents well tend to share a discipline about transparency and testing. They are explicit about which rents in a model are trended and which are held flat, so no reader mistakes a growth-laden projection for a conservative one. They ground the growth rate in evidence, drawing on comparables, historical data, and a clear supply and demand thesis rather than defaulting to a comfortable assumption.
They also pressure-test the assumption rather than trusting it. Running the model across a range of growth rates shows how sensitive the return is to the rent thesis, and a deal whose viability hinges on an optimistic rate is flagged for what it is. Crucially, they look at untrended returns alongside trended ones, often through an untrended yield on cost, to understand how much of the projected outcome rests on growth that has not yet happened. When the trended and untrended figures diverge sharply, that gap becomes a focus of diligence rather than something the model quietly absorbs. This habit keeps the optimism in a projection visible and accountable, which is what allows an investment committee to weigh it honestly.
Frequently asked questions
What are trended rents?
Trended rents, also called trended forward rents, are projected future rental rates in a financial model that are grown each year of the hold period by an assumed annual growth rate. That rate is usually tied to expected market rent growth or to contractual lease escalations, so the model reflects rents rising over time rather than staying fixed at today's level.
What is the difference between trended and untrended rents?
Trended rents grow each year by an assumed rate, so future cash flows reflect rising rents. Untrended rents hold rents flat at today's level in today's dollars across the projection. Untrended analysis is the more conservative view because it does not credit the deal with future growth, while trended analysis shows the upside an investor expects to capture over the hold.
Why do underwriters look at both trended and untrended returns?
The growth rate behind trended rents is an assumption, and an aggressive rate can make a marginal deal look attractive. Reviewing the untrended return, often as an untrended yield on cost, shows how the investment performs on today's rents alone. Comparing the two reveals how much of the projected return depends on rent growth that has not happened yet.
What growth rate should be used to trend rents?
There is no single correct rate. Teams typically anchor the assumption to historical market rent growth, current leasing comparables, and a view of supply and demand for the asset type and submarket. Contractual escalations in existing leases set a floor for in-place space, while rollover to market drives the assumption for vacant or expiring space. The rate is a key sensitivity that should be tested across a range.