Today, out of home leasing and development expert Andy Goodman of Age Advertising discusses billboard lease escalator clauses.

Ask a room full of industry veterans what a reasonable out of home lease escalator looks like, and you will get a range of answers—followed quickly by stories of deals that made sense on day one and became untenable years later.

How We Got Here

Earlier in the industry’s evolution, inflation adjustments were modest and infrequent. Five percent every five years—or even every ten years—was common. Over time, that crept up to 10 percent every five years, which many operators accepted as a fair compromise between protecting landlords and preserving long-term feasibility.

Today, those benchmarks feel almost quaint. Increasingly, landlords and municipalities are pushing for annual escalators tied directly to CPI, or fixed increases of 2–3 percent per year, sometimes capped at 4 percent. On paper, these numbers may appear conservative. In practice, they compound quickly—and often catastrophically.

The Compounding Reality

Consider a typical California scenario. A billboard operator may be facing a 3 percent annual escalator to the property owner and another 3 percent to the city. Combined, that is effectively a 6 percent increase every year before accounting for any other operating costs. Over time, that can push total annual obligations into the 7, 8, or even 10 percent range.

The problem is that OOH revenue does not grow at that pace. In gross terms—not inflation-adjusted—industry revenues have historically increased by 2-2.5% annually. In other words, OOH is barely keeping up with inflation, not outpacing it. When lease costs rise faster than revenue, the math eventually breaks.

When “Reasonable” Becomes Infeasible

The industry has seen this movie before. A $1,000/month lease written with a 5 percent annual inflator may look harmless at signing but it will have almost tripled to $2,650 by the end of 20 years.  Great for your landlord but not for you, particularly when enthusiasm is high and a new digital asset is on the horizon. Over the life of the lease, however, that escalator turns a profitable location into a liability.

This is not hypothetical. There are real examples of leases went from viable to infeasible because of aggressive escalation clauses. The root cause is not malice but short-term thinking—someone eager to close a deal agreeing to terms that feel manageable in year one and become suffocating by year ten.

The Inevitable Reckoning

Experienced operators understand that markets are cyclical. There are good years and bad years, and OOH companies plan accordingly. But when escalators are misaligned with revenue realities, even the best planning cannot compensate.

At some point, billboard operators—particularly those that have invested heavily in digital infrastructure—will face hard choices. They will return to property owners and cities with two options: renegotiate rent or escalators, or remove the sign entirely. What began as a revenue-maximizing strategy for landlords and municipalities can quickly turn into a lose-lose outcome.

The Municipal Wild Card

The issue is further complicated by municipal competition. Some cities have demanded exceptionally high fees and aggressive escalators, extracting maximum value from a small number of permitted signs. This works until a neighboring city opens the door to new development.

When one jurisdiction allows multiple billboards under sustainable terms, it quickly outperforms a neighboring city that permits only one sign burdened with excessive costs.

Is This Sustainable?

 High upfront payments, aggressive annual escalators, and revenue growth that lags inflation threaten sustainability.. If the economics no longer work, signs come down, investment slows, and cities and property owners collect less, not more.  A reasonable inflation adjustment keeps a billboard remain viable over decades, not just a few years.

You can reach Andy at andygoodman.age@gmail.com or 310–721–8422.

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