Market Assumptions Flashcards

In ARGUS Enterprise, how does the 'inflation rate' general assumption differ from the 'market rent growth rate' market leasing assumption?

Answer: Inflation drives operating expense escalation while market rent growth drives future lease rental rates independently

The general inflation rate escalates operating expenses and CPI-linked items, while market rent growth independently drives the rental rates on new and renewal speculative leases.

When a lease in ARGUS has a CPI rent escalation tied to actual CPI rather than a fixed bump, which input must the analyst define under general market assumptions?

Answer: CPI or general inflation rate

CPI-linked escalations in ARGUS reference the general inflation or CPI rate assumption set by the analyst to project future rent bumps.

An ARGUS model for a mixed-use property has retail space on the ground floor and office space on upper floors. Best practice is to assign these spaces:

Answer: Separate market leasing profiles reflecting different rent levels, TI norms, and lease terms by use type

Retail and office uses have distinct market characteristics and should carry separate market leasing profiles for accuracy.

In ARGUS, the 'holdover' assumption specifies what happens when a tenant's lease expires and they remain in the space without a new lease. Which market assumption typically governs holdover rent?

Answer: Holdover is typically modeled at a premium above the expiring contract rent or at market rent

Holdover tenants often pay a rent premium (e.g., 110–150% of contract rent) or market rent as a penalty for occupying space without a signed lease.

An analyst is stress-testing a valuation and changes the market rent growth assumption from +3% to 0% annually. The most likely direct impact on the DCF output is:

Answer: Lower projected rents on future leases, reducing NOI and decreasing property value

Flat market rent growth means new and renewal leases will carry lower rents than in the base case, depressing future NOI and reducing the present value of cash flows.

Which ARGUS market leasing assumption most directly controls the landlord's upfront cash outlay when a new tenant signs a lease?

Answer: Tenant improvement allowance

The tenant improvement allowance represents the landlord's cash expenditure to build out the space for the incoming tenant, making it the primary upfront cost driver.

In ARGUS, if an analyst assigns a market leasing assumption with a 12-month lease term and 60% renewal probability, approximately what percentage of tenant turnover is expected at each lease expiration cycle?

Answer: 40% of tenants are expected to vacate at each expiration

With 60% renewal probability, 40% of tenants are assumed to leave at expiration, triggering downtime and re-leasing for those spaces.