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Estimated Rental Value (ERV)

Estimated rental value (ERV) is the open market rent that a property can be reasonably expected to attain given its characteristics, condition, location and local market conditions. ERV is often compared to passing rent which is current rent paid to the landlord. Such comparisons are done to adjust rental rates when a lease is up for renewal.

In an undersupplied rental market, in which demand for properties exceeds supply, the vacancy rate is decreasing and rents are rising, so the estimated rental value may exceed the passing rent. Hence, the landlord is no longer maximising the rental revenue from the lease.

In an oversupplied market, in which supply of properties exceeds demand, the vacancy rate is increasing and rents are declining so the ERV may be lower than the passing rent. Here the landlord is maximising the rental revenue from the lease but at a greater likelihood of vacancy upon expiry of the lease.