A health ration, also known as an occupancy cost ratio, it the relationship between a retailer’s sales and total occupancy costs. A retailer’s health ratio for a given location is calculated using the formula of total annual rent (inclusive of reimbursements) of the location divided by its gross annual sales for that location. For example, if a tenant has an occupancy cost of $150,000 and generates gross annual sales of $1,200,000 from the location, then the tenant’s health ratio would be 12.5% ($150,000 occupancy costs divided by $1,200,000 gross sales). Note that “healthy” health ratios can differ by type of tenant and sales per square foot. An acceptable health ratio for a grocery store, which is typically a low margin business, is often 2.0% or less, whereas a jewelry store, which often generates high sales dollars per square foot, may have an acceptable health ratio of 14.0% or greater.
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