What it means
The market in this phrase means the collection of comparable transactions happening around the same time. Once you know what similar office space rents for, what similar roles pay or what similar shares trade at, anything priced under that reference point is below the market.
The term says nothing about whether the deal is good or bad; that depends entirely on which side of it you are standing. Business people use it constantly because it turns a raw number into a comparison that carries meaning.
Saying a lease costs $38.25 per square foot tells a board very little, but saying it is 15% below the market rate for the district immediately explains why the company should sign quickly. The same reframing works for salary bands, supplier contracts and asset disposals.
Calculating the gap is straightforward once a credible market reference exists, which is usually the hard part. Property teams rely on comparable lettings, pay teams rely on salary surveys, and finance teams rely on quoted prices or broker valuations.
The discount is then expressed as a percentage of the market figure so that deals of different sizes can be compared on a level footing. Being below the market has consequences beyond the immediate saving.
A landlord letting space cheaply reduces the capital value of the building, because investors price property off its rental income. An employer paying below the market saves cash today but usually pays for it later in turnover, recruitment fees and lost productivity.
There is also a trading sense of the phrase, where a limit order to buy is placed below the current market price and simply waits until the price falls to that level. In that context "below the market" describes a deliberate instruction rather than a completed bargain, and the order may never execute at all.
In practice
Real-world examples.
Example
A logistics company reviews its pay bands and finds that its warehouse supervisors earn $52,000 against a regional survey median of $61,000, putting them roughly 15% below the market. The finance director models a phased correction over two years after calculating that supervisor turnover is costing more than the pay gap saves.
Example
A family-owned bakery sells a delivery van to a long-standing employee for $9,000 when comparable vans list at $15,000. The accountant flags that the $6,000 difference is a benefit to the employee rather than simply a low sale price, and it must be reported accordingly.
Example
An investor places a limit order to buy 5,000 shares at $42 while the stock trades at $46. The order sits below the market and only fills if the price drifts down, which means the investor may end up holding cash rather than shares.
Formula
Calculation
Discount below market = (Market rate - Actual rate) / Market rate x 100
Annual value of the discount = (Market rate - Actual rate) x Quantity
A design agency signs a ten-year lease on 12,000 square feet of office space at $38.25 per square foot per year. Comparable space in the same district is letting at $45.00 per square foot.
The gap per square foot is $45.00 - $38.25 = $6.75. As a percentage of the market rate, that is $6.75 / $45.00 = 0.15, or 15% below the market.
In cash terms the agency pays 12,000 x $38.25 = $459,000 a year, against a market cost of 12,000 x $45.00 = $540,000. The annual saving is $540,000 - $459,000 = $81,000, which over the ten-year term is worth $810,000 before discounting. The landlord, meanwhile, is collecting $81,000 a year less than the building could support, which will show up as a lower valuation when the property is next appraised.Case study
Seen in the real world.
Harlow Print Collective is a fictional commercial printer used here for illustrative purposes. Five years ago it signed a fifteen-year lease at $22 per square foot on a unit in an industrial estate that was then half empty. The estate has since filled up with distribution tenants and comparable units now let at $34 per square foot.
Harlow's lease is roughly 35% below the market, which on its 20,000 square feet is worth $240,000 a year in avoided rent. The managing director had been treating the lease as an administrative detail until a prospective buyer of the business valued it explicitly, pointing out that the remaining ten years of cheap rent were worth more than the printer's machinery.
The insight changed how Harlow ran its negotiations. When the landlord offered a lease surrender payment to regain the unit, Harlow was able to argue from a calculated figure rather than a feeling, and settled for a sum that reflected the value of what it was giving up.
Watch out
Common mistakes.
- Treating "below the market" as an objective fact rather than a comparison against a chosen reference set. Change the comparable properties or the salary survey and the discount changes with it.
- Celebrating a below market purchase without asking why the seller accepted it. A steep discount often signals a defect, an urgent seller or a restriction attached to the asset.
- Confusing a below market limit order with a completed bargain. An order placed under the current price is only an instruction and may never be filled.
Questions
People also ask.
How large a gap counts as below the market?
There is no fixed threshold, but a difference of more than a few per cent against a credible set of comparables is usually described that way in practice.
Does paying below market wages always save money?
Rarely over a full cycle, because higher turnover, longer vacancies and recruitment fees tend to erode and often exceed the payroll saving.
Can a landlord force a below market rent back up mid-lease?
Only where the lease contains a rent review clause or a break, otherwise the agreed rate stands until the term ends.
From the founder's library
Take it further with the book.
Build your financial confidence beyond this definition. Shihan's full-length guide, Accounting Fundamentals, takes the same plain-English approach and turns it into a complete, practical playbook for non-finance managers, business owners and students - with chapter-end quiz answers and presentation slides included.
25% off with code MMHQ25, applied at checkout. Priced in USD - checkout may show the equivalent in your local currency.
View the book and save 25%Related