Occupancy cost ratio

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED 2026-11-06

// THE SHORT ANSWER

An occupancy cost ratio is a retail tenant's total cost of occupying a shop, base rent, any turnover rent, outgoings or service charge, marketing levies and, in the UK, business rates, as a share of that shop's sales over a year. A store selling US$1.2m a year with US$150,000 of rent and US$30,000 of outgoings has an occupancy cost ratio of 15%. Shopping centre landlords often collect tenants' sales under the leases and report the ratio by tenant group, and a lender to the centre reads a rising ratio as rent that renewals may not sustain. A lender to a retailer reads the same ratio store by store.

BASIS  Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.