An escalation clause is lease language setting scheduled rent increases, such as fixed bumps, percentage increases, or CPI adjustments.
Escalations are a key part of the NNN return because they increase income over time. Fixed bumps, such as 10% every five years or 1% to 2% annually, are predictable, while CPI-based increases depend on inflation. Escalations also vary by lease period, so check whether they continue into option periods. When comparing listings, look beyond the initial cap rate to see how rent grows, since a lower starting cap rate with steady growth can compare well to a higher one with flat rent.