By the Numbers
If your industrial leases are below today’s market—and after several years of East Bay rent growth, many are—you’re holding an asset with real upside baked in. The question is who captures it: you, by raising rents and holding, or a buyer, who pays you for it today. Here’s how to think it through instead of guessing.
First, measure the gap honestly
Pull your rent roll and compare each tenant’s current rent to what that exact space would lease for today—same submarket, same clear height, same condition. Don’t use asking rents; use what’s actually being signed. A typical 2026 finding: leases written in 2020–2021 sitting 15–30% under market.
Multiply that gap across your square footage and you have the prize. A 30,000 SF park that’s $0.30/SF/month under market is leaving roughly $108,000 a year of NOI on the table—and at a 6.5% cap, that’s about $1.66 million of value waiting to be unlocked.
The “reposition and hold” path
You capture the upside yourself by bringing rents to market as leases roll, sometimes reinvesting in the building to justify the higher rate. This works best when your leases roll soon (12–24 months), you have the capital and patience for improvements and turnover, and the submarket supports the higher rent—which East Bay small-bay still does. The cost: time, management, leasing risk, and the chance cap rates drift up while you wait.
The “sell into the upside” path
You sell now and let the buyer pay for the gap. Counterintuitively, below-market rents are a selling advantage—buyers compete for clean, provable upside, and a good process prices that future income into today’s number rather than giving it away. This fits when your leases have years left, when you’d rather redeploy the capital (a 1031, a different submarket, or out of active management), or when you don’t want the execution risk yourself.
A simple way to decide
Ask three questions: When does the income actually arrive? (Soon favors holding; years out favors selling.) What’s your next-best use of the capital? (A clear higher return favors selling.) How much management do you want? (Repositioning is hands-on; selling is a clean exit.)
The bottom line
There’s no universally right answer—it depends on your timeline, your capital plan, and your appetite for management. What you shouldn’t do is assume the upside only counts if you stay. In a strong submarket, you can be paid for it on the way out.
Want to See Both Numbers?
I’ll value your building as-is and as-stabilized, and lay out what each path nets you after costs and taxes—so the decision is based on figures, not instinct.
Request a Sell-vs-Hold Analysis