How is Commercial Real Estate Rent Calculated?

How is commercial real estate rent calculated?

When looking to rent commercial real estate, most people sort by monthly rental fees and quickly eliminate property out of their price range. While this strategy is common, it’s not necessarily the best way to start your hunt. As you peruse listings, you will see various options, but there is also a huge range in the cost. It’s important to consider the factors that go into calculating commercial real estate rent as you make your final decisions. As a commercial property owner, it’s important to know all the factors to include as you set rent on your buildings. Today we’re answering the question, “How is commercial real estate rent calculated?”

What is a Commercial Lease?

A commercial lease is a contractual agreement between the landlord of a non-residential space and the business tenant. This type of lease agreement is typically used for retail spaces, offices, hotels, restaurants, or other establishments. 

What Is Usable Square Feet Versus Rentable Square Feet

Most office leases are based on rentable square footage, but it’s important to understand that the space you rent may be more than what you actually use. Usable square feet includes your office space, private bathrooms, closets, and any other space that is only available to your company.

Rentable square feet include common areas available to all commercial tenants, such as conference rooms, kitchens, and bathrooms. Pay close attention to the usable square feet available. If you have more employees, you may need more usable square feet than the rentable square footage. The quickest way to make sure you are able to accommodate your employees is with a floor plan.

How Is Commercial Real Estate Rent Calculated?

In many cases, a tenant’s business determines the base rental rate of a commercial lease. The rent prices for your property are likely to use one of these options for your prospective business:

Square Footage Lease

Some landlords base the monthly rent on the square footage. For example, a 2,000-square-foot office based on $10.00 per square foot would equal $20,000 per year. Divided monthly, this would cost $1,666 per month. Plus add in the cost of utilities and repairs.

Percentage Lease

It can be common practice for retail locations to pay a base rate and then a percentage of sales. Some landlords require a percentage after a certain amount of gross sales and other landlords start charging after the first initial sale. This method gives retail locations a break when sales are lowering, such as during the winter. It also ensures that the landlord makes enough to cover the mortgage and building costs over time.

Full Service, Gross, or Net Rent

When choosing a commercial property to rent, it’s important to consider the expenses included in a lease. It may be less expensive to request full service rent than to itemize each bill.

Full service rent includes electric, water/sewer, dumpster, janitorial, real estate taxes, building insurance, maintenance costs, and base rent.

Gross rent includes real estate taxes, building insurance, maintenance and base rent.

Net Rent tenant pays the base rent, and then the actual cost for utilities, taxes, insurance, maintenance, janitorial, and dumpster are paid directly or as a pass-through based on the actual cost to the Landlord.

The amount of rent you charge is a large factor in which commercial properties are the best investments. At Ullian Realty, we have over 60 years of combined experience locally serving Brevard County. Contact us to learn more about how we will help you find the best investment property.

 

This article was originally published on January 24, 2019, but has been updated for freshness and accuracy.