Want to know if a tenant is truly a good fit for your center? It’s not just about how great they are—it’s about how much money they’ll make and whether they can afford your rent. That’s where the health ratio (aka occupancy cost ratio) comes in.
Here’s the formula:
Annual Sales ÷ Annual Rent = Health Ratio
For example:
$500,000 in annual sales ÷ $50,000 in rent = 10% health ratio
Different industries have different thresholds, but as a general rule, 10% or under is ideal. Anything higher? 🚩 You might have a great tenant in the wrong location—or charging too much rent for their margins.
You can find industry benchmarks in the ULI Dollars and Cents of Shopping Centers guide (yep, still relevant even though the last version was 2008).
Learning to read a business plan or analyze a P&L isn’t just a bonus skill—it’s a must if you want to sign long-term, successful tenants. The rent you charge has to align with the tenant’s ability to generate sales. Period.
So before you sign that next lease, do the math. Know the ratios. And lease like a Rockstar.