Rent-to-Sales Ratio for NNN Properties: How to Calculate and Use It

What Is the Rent-to-Sales Ratio? The rent-to-sales ratio (also called occupancy cost ratio) compares what a store pays in rent with what the store sells: Rent-to-sales ratio = annual rent ÷ annual store sales A lower ratio means the rent is a smaller share of the store's revenue, so the location is easier for the tenant to afford and more likely to be renewed. A Worked Example These numbers are made up, purely to show the math: - Annual rent: $120,000 - Annual store sales: $2,000,000 - Rent-to-sales ratio: $120,000 ÷ $2,000,000 = 6% If the same store sold $1,000,000 a year, the ratio would be 12%. The rent is identical, but the tenant is under twice as much pressure to pay it. Why It Matters to a Net Lease Buyer A tenant's credit rating tells you whether the company can pay. The rent-to-sales ratio tells you whether this specific store makes sense for the company to keep. That matters most at lease renewal, when the tenant decides whether to stay. - Low ratio: the store is profitable at this rent; renewal is more likely. - High ratio: the store may be marginal; the tenant has less reason to renew at the same rent. What Counts as a "Good" Ratio? There is no single number. Healthy ranges differ a lot by industry: a restaurant, a pharmacy and a dollar store run on very different margins. Compare a property against others in the same tenant category (the <a href="/tenants">tenant directory</a> groups listings by brand), and ask the listing broker or tenant how the store performs against the chain's average. Where to Get Store Sales Sales figures are not always available: 1. The lease. Some leases require the tenant to report sales, often because of percentage rent. Ask the seller for the reports. 2. The offering memorandum (OM). Some OMs include sales or a rent-to-sales figure. Request the OM on any listing. 3. The broker. Ask directly. Many large chains do not share store-level sales, and that is normal. If sales are not available, lean harder on the other signals in our <a href="/blog/nnn-tenant-vacancy-risk-what-happens-if-tenant-leaves">vacancy risk guide</a>: remaining term, guarantor, market rent and location. Use It Alongside Cap Rate A higher cap rate can look attractive until you see a high rent-to-sales ratio behind it. Use the two together: cap rate shows your return, and rent-to-sales shows how durable that rent is. See our <a href="/cap-rates">cap rate pages</a> and the <a href="/glossary/cap-rate">cap rate definition</a>, and check <a href="/comps">closed sales comps</a> for context. Filter by Rent-to-Sales on Net Lease World Where store sales data is available, the <a href="/deals">deals marketplace</a> lets you filter by maximum rent-to-sales ratio in the investor filters, so you can focus on locations where the rent is comfortably covered. Frequently Asked Questions How do you calculate rent-to-sales? Divide the annual rent by the store's annual sales. $120,000 rent on $2,000,000 of sales is 6%. Will the broker give me the store's sales? Sometimes. It depends on whether the lease requires sales reporting and whether the tenant allows it to be shared. Many national chains do not disclose store sales. Is a lower rent-to-sales ratio always better? Generally yes for renewal odds, but compare within the same tenant type and look at remaining term and location too. Is rent-to-sales the same as occupancy cost? They are closely related. Occupancy cost can also include taxes, insurance and maintenance, which a net lease tenant pays on top of rent.