California Real Estate Practice Exam

If the rent of commercial property increased well above the maintenance or servicing costs, the resulting situation would:

1. Increase the demand for space

2. Increase the effective gross income

3. Increase the vacancy rate, and tenants would tend to conserve on space

4. Not affect the vacancy rate

The correct answer is: Increase the vacancy rate, and tenants would tend to conserve on space

The scenario describes a situation where rent increases significantly beyond maintenance and servicing costs. In such a case, tenants may feel the financial strain of higher rents, leading them to reconsider their space requirements. As a result, tenants could downsize or leave if they perceive that the value they receive from the space does not justify the costs. This behavior would likely increase the vacancy rate as tenants seek more affordable options or adjust their space needs in response to rising rental costs. The option that states this effect—where tenants conserve on space and possibly vacate—genuinely captures the behavioral response tenants might exhibit under increased rent conditions. As tenants prioritize their financial well-being, a higher occupancy cost can drive them to look for more economically feasible arrangements, leading to an uptick in vacancies.