Yield explained: passing rent, ERV and reversion
Yield is the annual rent expressed as a percentage of the property's value. Initial yield uses the rent currently being paid. Reversionary yield uses the rent the property could achieve at today's market rates. The gap between the two is where investors look for growth, and closing it depends on lease events actually happening.
Last reviewed September 2026.
The terms, in plain English
Passing rent is what the tenant is actually paying today.
Estimated rental value, or ERV, is what the space would let for today at market rates, in the valuer's opinion. An estimate, not a fact.
Initial yield is the passing rent divided by the price, as a percentage. What you earn now.
Reversionary yield is the ERV divided by the price. What you would earn if the passing rent moved to market level.
Reversion is the process of the passing rent moving towards ERV, at a rent review, a lease renewal or a new letting.
Equivalent yield is a single blended figure a valuer uses to reflect both the current income and the expected reversion over time.
A worked example
A shop is bought for £1,000,000. The tenant pays £55,000 a year. The valuer's ERV is £75,000.
Initial yield: £55,000 ÷ £1,000,000 = 5.5%. Reversionary yield: £75,000 ÷ £1,000,000 = 7.5%.
The building is described as reversionary, meaning under-rented against the market. If the rent reaches ERV the income rises by 36%, and if the building were then valued on the same yield basis, its value would rise in step.
That is the whole reversionary argument, and it is why investors will accept a modest initial yield on an under-rented building. The figures here are invented for illustration and are not drawn from any Helmsley property.
Why the reversion may not happen
Three reasons, none of them remote.
The ERV is an opinion. If the valuer is optimistic, the reversion was never there.
The timing depends on lease events. Rent only moves at a review, a renewal or a new letting. If the next review is six years away, so is the reversion, and money in six years is worth less than money now.
The tenant may not agree, or may leave. Reaching ERV at renewal assumes the tenant renews at that figure. They may negotiate, or go, leaving you with an empty unit and re-letting costs before any higher rent arrives.
Over-rented is the mirror image
Where the passing rent is above ERV, the building is over-rented. The initial yield looks attractive, but the income is expected to fall at the next lease event. Buying an over-rented building on its initial yield without adjusting for that is one of the more expensive mistakes in this business.
Gross and net
A quoted yield is often gross. The net figure, after management, insurance, non-recoverable costs and rates on any empty space, is what actually reaches an investor. Ask which one is being quoted. On our own property pages we show the initial yield at the date of syndication and say so, because a yield without its date and its basis is not much use to anyone.
Yield reflects risk
A higher yield is not simply better. Yield is the market pricing risk.
A prime building let to a strong covenant on a long lease in a strong location trades at a low yield, because the income is reliable. A secondary building with a weak tenant and a short lease trades at a high yield, because it might not deliver.
A yield that looks unusually generous is telling you something about the risk. The question is always what the market knows that makes this building cheap.
Using yields sensibly
Never take a yield on its own. Ask what rent it is based on and how that compares with the market. When the rent can actually change. How solid the ERV is and what evidence supports it. Whether it is gross or net. And what the building would be worth if the tenant left.
Take independent advice.