How is "economic rent" defined in real estate?

Economic rent refers to the income that a property could generate in the market, based on its highest and best use, and the prevailing conditions of supply and demand. This concept reflects the potential earnings that a property can reasonably produce, rather than the specific rental amount agreed upon in a lease. It takes into consideration market conditions and provides a more objective measure of a property’s capability to generate income under typical circumstances.

Understanding economic rent is crucial for appraisers and investors as it helps them assess property value and investment potential. Acknowledging that economic rent is based on reasonable expectations rather than the actual lease terms allows for a clearer analysis of a property's value within the broader market context.

The other options, while related to rental income, do not encapsulate the full concept of economic rent as it pertains to market potential and conditions. For instance, the agreed-upon rent in a lease reflects only one aspect of rental income and may not accurately indicate the economic conditions influencing the broader market. Similarly, the notion of highest value property and maximizing investor return represents particular perspectives that focus on subjective interpretations or individual investment strategies rather than the general concept of economic rent.