A CPI escalation is a rent increase tied to changes in the Consumer Price Index instead of a fixed percentage.
CPI escalations help rents keep pace with inflation, which is attractive in a long lease. The lease should say which index is used, how often rent adjusts, and whether there is a floor or a cap. A cap can limit the upside in high-inflation years, while a floor protects the landlord when inflation is low. Compared with fixed escalations, CPI increases are less predictable, so underwrite them conservatively when estimating future income and resale value.