--- title: What is the Health Ratio and why is it important for commercial real estate investors? description: Learn about the health ratio in commercial real estate, its importance for assessing tenant stability, and typical ratios for various industries. image: https://blog.thepalomargroup.com/hubfs/Health-Ratio%20image.jpeg --- [Skip to content](https://blog.thepalomargroup.com/blog/what-is-the-health-ratio-and-why-is-it-important-for-commercial-real-estate-investors#main-content) Jul 9, 2024 9:49:48 AM # What is the Health Ratio and why is it important for commercial real estate investors? [Palomar Group](https://blog.thepalomargroup.com/blog/author/palomar-group) Share: [facebook-f icon](http://www.facebook.com/share.php?u=https://blog.thepalomargroup.com/blog/what-is-the-health-ratio-and-why-is-it-important-for-commercial-real-estate-investors) [linkedin-in icon](http://www.linkedin.com/shareArticle?mini=true&url=https://blog.thepalomargroup.com/blog/what-is-the-health-ratio-and-why-is-it-important-for-commercial-real-estate-investors) [Twitter icon](https://twitter.com/intent/tweet?url=https://blog.thepalomargroup.com/blog/what-is-the-health-ratio-and-why-is-it-important-for-commercial-real-estate-investors) [pinterest-p icon](http://pinterest.com/pin/create/link/?url=https://blog.thepalomargroup.com/blog/what-is-the-health-ratio-and-why-is-it-important-for-commercial-real-estate-investors) [envelope icon](mailto:?body=https://blog.thepalomargroup.com/blog/what-is-the-health-ratio-and-why-is-it-important-for-commercial-real-estate-investors)   ![Health-Ratio image that displays Palomar Logo](https://blog.thepalomargroup.com/hs-fs/hubfs/Health-Ratio%20image.jpeg?width=1200&height=627&name=Health-Ratio%20image.jpeg)   We are often asked how retailers are doing in the assets that we sell. One of the most often used metrics that we use to determine how a retailer is performing and weigh the probability that they will renew at a location is determining their health ratio, which takes total rent divided by total sales. It helps paint a picture as to whether a retailer is profitable or not at a specific location. Similar to how a doctor tests the blood pressure and cholesterol of patients, investors can check the health ratio of tenants to see what kind of shape they are in. The health ratio helps investors determine if tenants are paying rents that are above, at, or below sustainable levels and is a good indicator of whether tenants will be able to make future payments. A low health ratio shows that a tenant is better positioned to remain stable in the event of market fluctuations. If a tenant has a health ratio that is well below market, landlords may try to raise the rent. However, if a tenant’s health ratio is above market, the landlord may have to lower rent.   But health ratios differ by industry. For example, grocers have more overhead expenses and smaller margins than a gym, so they would need a much lower health ratio. Some retailers, such as Best Buy, have seen health ratios increase as online shopping continues to rise. Many retailers are okay with the increase in their health ratio if online sales are able to offset some of their real estate costs. Below are typical health ratio ranges that we see for tenants that are common in shopping centers today:   - Grocery: 1%-5% - Restaurant: 5% – 8% - Clothing retailer: 5%-10% - Gym: 15%-25%   **Example**: Let’s say Leroy’s Grocery Store has yearly revenue (sales) of $1,000,000, and their yearly rent payments are $40,000. Leroy’s health ratio would be 4%. Total Rent / Total Sales = Health Ratio $40,000/$1,000,000 = 4%     ## Related posts [![A vector image of a grocery store or shopping center with a large stethoscope wrapped around it, symbolizing a health check of commercial real estate.](https://blog.thepalomargroup.com/hs-fs/hubfs/Untitled%20design%20(4)-1.jpg?height=200&name=Untitled%20design%20(4)-1.jpg)](https://blog.thepalomargroup.com/blog/how-can-i-improve-my-retail-propertys-health-ratio) [health ratio](https://blog.thepalomargroup.com/blog/tag/health-ratio) ## [How Can I Improve My Retail Property’s Health Ratio?](https://blog.thepalomargroup.com/blog/how-can-i-improve-my-retail-propertys-health-ratio) [Palomar Group](https://blog.thepalomargroup.com/blog/author/palomar-group) Aug 6, 2024 9:20:37 AM Maintaining a healthy health ratio for your retail property is crucial for maximizing profitability... [Read more](https://blog.thepalomargroup.com/blog/how-can-i-improve-my-retail-propertys-health-ratio) [![Balance scale with coins and a storefront, symbolizing the balance between rent and sales in determining a tenant's financial health in commercial real estate investments.](https://blog.thepalomargroup.com/hs-fs/hubfs/Untitled%20design%20(6).jpg?height=200&name=Untitled%20design%20(6).jpg)](https://blog.thepalomargroup.com/blog/what-is-a-good-health-ratio-for-my-commercial-property) [health ratio](https://blog.thepalomargroup.com/blog/tag/health-ratio) ## [What Is a Good Health Ratio for My Commercial Property?](https://blog.thepalomargroup.com/blog/what-is-a-good-health-ratio-for-my-commercial-property) [Palomar Group](https://blog.thepalomargroup.com/blog/author/palomar-group) Aug 21, 2024 10:59:42 AM Understanding the financial health of your retail tenants is crucial for smart commercial real... [Read more](https://blog.thepalomargroup.com/blog/what-is-a-good-health-ratio-for-my-commercial-property) [![Illustration of a storefront connected to digital shopping icons, representing the integration of e-commerce with physical retail stores. The icons include a shopping cart, smartphone, laptop, AI, and shopping bag, highlighting various aspects of online and omnichannel retail strategies.](https://blog.thepalomargroup.com/hs-fs/hubfs/Untitled%20design%20(5).jpg?height=200&name=Untitled%20design%20(5).jpg)](https://blog.thepalomargroup.com/blog/how-is-online-shopping-impacting-retail-health-ratios) [health ratio](https://blog.thepalomargroup.com/blog/tag/health-ratio) ## [How is Online Shopping Impacting Retail Health Ratios?](https://blog.thepalomargroup.com/blog/how-is-online-shopping-impacting-retail-health-ratios) [Palomar Group](https://blog.thepalomargroup.com/blog/author/palomar-group) Aug 14, 2024 12:06:24 PM The rise of online shopping has significantly reshaped the retail landscape, affecting the health... 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