Short answer
Remaining lease term is the number of years left on a lease's primary term, not counting renewal options the tenant has not exercised. In single-tenant net lease it is one of the largest drivers of cap rate, because it measures how long the income is contractually committed before the owner faces re-leasing risk. The same tenant can trade roughly 200 basis points apart on long and short leases, and a property's value erodes each year as the term burns off.
Key Takeaways
- Remaining lease term counts only the committed primary term. Renewal options belong to the tenant, who exercises them only if the location still works.
- The Boulder Group's Q2 2026 data put median CVS asking cap rates at 6.35% with 15 to 19 years left and 8.50% with under 5 years.
- Lease term burn-off means a property's cap rate tends to rise every year the lease shortens, even if the market and tenant do not change.
- Rent increases can offset burn-off, but flat-rent leases held into their final years often lose value while producing steady income.
- A short lease is priced partly on dark value: what the building is worth empty, after downtime, re-leasing costs and a lower market rent.
| CVS median asking cap rate | |
|---|---|
| 15 to 19 years | 6.3% |
| 10 to 14 years | 7.0% |
| 6 to 9 years | 7.5% |
| Under 5 years | 8.5% |
What remaining lease term means
Remaining lease term is the time left before the tenant has the right to leave: the unexpired primary term, measured from today. It excludes renewal options, which the tenant may or may not exercise, and it is the period during which the rent is a contractual obligation backed by the tenant's credit and any lease guarantee.
In a single-tenant building, remaining term defines two periods with very different risk. During the term, the investment behaves much like a corporate bond: fixed payments from one obligor. At expiration, it becomes a real estate bet: the tenant renews, a new tenant is found at market rent, or the building sits empty. The closer that date, the more of the value depends on the building and location rather than the tenant's promise.
Across a portfolio, the same idea is summarized as weighted average lease term (WALT).
Why the same tenant trades at different cap rates
A 15-year lease and a 5-year lease to the same company carry the same credit risk per year but very different amounts of re-leasing risk. Buyers price that difference directly into the cap rate, and lenders do too, often limiting loan size or term when the lease expires before the loan does.
The Boulder Group's Q2 2026 Net Lease Market Report breaks median asking cap rates out by years remaining. The spread between the longest and shortest buckets was roughly 185 to 215 basis points for these tenants:
| Tenant | Longest term bucket | Shortest term bucket | Difference |
|---|---|---|---|
| CVS | 6.35% (15 to 19 years) | 8.50% (under 5 years) | 215 bps |
| Dollar General | 6.85% (12 to 15 years) | 9.00% (under 3 years) | 215 bps |
| Corporate QSR | 5.00% (20+ years) | 6.85% (under 10 years) | 185 bps |
Some of that spread is the time value of certainty, and some is option value: at the end of a short lease, the tenant decides whether to stay, and it will usually negotiate from strength. The Boulder Group also observed that long-term, investment-grade leases made up less than 10% of retail listings in Q2 2026, which keeps their cap rates tight.
Worked example: lease term burn-off
Lease term burn-off is the loss of value that occurs as a lease shortens. Because shorter leases command higher cap rates, a property bought with long term can be worth less years later even if the tenant, the rent and the market are unchanged. Scheduled rent increases are the main offset.
In this hypothetical, an investor buys a property with $150,000 of NOI and 15 years remaining at a 6.50% cap rate, paying $2,307,692. Ten years later, 5 years remain, and comparable 5-year leases trade at an 8.25% cap rate. Market conditions are otherwise assumed unchanged.
| Lease structure | NOI in year 11 | Value at 8.25% | Change vs purchase price |
|---|---|---|---|
| Flat rent | $150,000 | $1,818,182 | -21.2% |
| 10% increases every 5 years | $181,500 | $2,200,000 | -4.7% |
The flat-rent owner collected every rent check on time and still lost about a fifth of the property's value. The owner with scheduled increases nearly held value, because higher income partly offset the higher cap rate. Neither scenario assumes the market moved; add cap rate expansion and the loss grows. This is why the sale date in a business plan should be set against the lease expiration, not chosen independently of it.
Renewal options vs primary term
A renewal option is the tenant's right, not an obligation, to extend. It adds value only in the scenario where the tenant wants to stay, so buyers and lenders count primary term and treat options as possible upside. A listing that advertises "35 years of term" may mean 10 years of primary term and five 5-year options.
- Options are exercised selectively. A tenant renews stores that perform and walks away from those that do not, so the options most likely to be exercised are on the properties that needed them least.
- Option rent matters. If option rent is set above what the market would pay, a tenant may decline or use the deadline to negotiate a lower rent. If it is at or below market, renewal is more likely. See market rent vs contract rent.
- Notice dates create cliffs. Most leases require notice of exercise several months before expiration. Until notice arrives, the market prices the property on the remaining primary term.
- Early extensions change the math. A tenant that extends early, sometimes through a blend-and-extend, resets the term and usually lowers the cap rate the property trades at.
More on option mechanics is in lease renewal options.
The downside case: re-leasing and dark value
The value of a short-term lease rests heavily on dark value: what the building is worth if the tenant leaves at expiration and it must be re-leased. Dark value depends on local market rent, how long it takes to find a tenant, the cost to re-tenant and the cap rate a buyer would pay for the new lease.
Continuing the hypothetical, the 10,000 square foot building would lease to a new tenant at a market rent of $12 per square foot, or $120,000 a year, against the current $15. Stabilized at an 8.5% cap rate, it would be worth about $1,411,765. From that, subtract 12 months of lost rent ($120,000), 12 months of taxes, insurance and upkeep the landlord now pays ($35,000), tenant improvements ($100,000) and leasing commissions of 4% of a 10-year lease's rent ($48,000). The hypothetical as-is dark value is about $1,108,765, some 39% below the $1,818,182 value with 5 years of term left.
The 4% commission convention follows the OCC Comptroller's Handbook, which notes lenders typically underwrite leasing commissions at 4% of total lease payments for new tenants and 2% for renewals. Local markets, the building's size and layout, and replacement cost determine how deep the real downside is, and a go-dark clause can bring that downside forward even while rent is still paid.
Common mistakes
Most term-related errors come from pricing a short lease as if it were long, or from assuming the tenant will stay because it has stayed so far. Each of the following overstates value, and each is common in marketing materials that lead with the tenant's brand rather than the lease dates.
- Counting options as term. Underwrite the primary term; treat options as upside.
- Using a market-average exit cap rate. At sale, the lease will be shorter. Price the exit off comparables with that remaining term. See exit cap rate assumptions.
- Assuming renewal because the tenant is investment grade. Strong credit tells you the rent will be paid through expiration, not that the tenant wants this location afterward. Store-level performance, measured by rent coverage, is the better predictor.
- Financing past expiration. A loan that matures after the lease expires can require refinancing a vacant or short-term building at the worst moment.
Frequently Asked Questions
Q: Do renewal options count toward remaining lease term?
A: Not in standard underwriting. Remaining lease term counts the primary term only. Options belong to the tenant and are exercised only if the location still makes sense, so they are treated as possible upside rather than committed income.
Q: How much does remaining lease term affect cap rates?
A: Substantially. In the Boulder Group's Q2 2026 report, median CVS asking cap rates were 6.35% with 15 to 19 years remaining and 8.50% with under 5 years, a 215 basis point difference for the same tenant.
Q: What is lease term burn-off?
A: It is the decline in value that happens as a lease shortens, because buyers pay higher cap rates for shorter remaining terms. Scheduled rent increases can partly offset it, while flat-rent leases are the most exposed.
Q: Is a short remaining lease term always bad?
A: No. A short lease is priced at a higher cap rate to reflect re-leasing risk. It can be reasonable when the rent is at or below market, the building is easy to re-lease and the location performs well for the tenant, but the downside case must be underwritten.
Q: What is dark value?
A: Dark value is what a single-tenant building is worth vacant, after accounting for the time and cost to find a new tenant and the rent a new tenant would pay. It sets the floor that matters most on short-term leases.
Sources
- The Boulder Group, Net Lease Market Report Q2 2026 (July 2026)
- OCC, Comptroller's Handbook: Commercial Real Estate Lending, Version 2.0 (March 2022)
- MBA NewsLink, Single-Tenant Net Lease Cap Rates Rise, Boulder Group Reports (July 2026)
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