If you are new to commercial real estate, you might be wondering how you can determine rent for your commercial property. The rent is determined by the price per square foot. You may assume that a price per month would be sufficient, but it is not that simple. Let’s take a look at how you can calculate the rent per square foot and what lease structure is.
Calculating Your Commercial Property Rent
Rent is calculated by each square foot because it shows how big the property is. It is typical for commercial spaces to be separated by multiple tenants or businesses. Price per square foot allows potential renters to compare your rent to other properties. Here is how you would calculate your annual rental rate. For example, each square foot is $28.00, and you have 4,000 square feet, the calculation would look like such:
- $28.00/sq. ft. x 4,000 sq. ft. = $112,000 per year
Some states have their commercial rents quoted monthly instead of annually. If you want to know the monthly commercial property rent, take the total and divide it by twelve. In the example above, you would have $9,333 as your monthly rent. Depending on the number of tenants and common space, you might be quoted on Usable or Rentable Square Footage (USF and RSF).
USF vs. RSF
Usable Square Footage is the space that you occupy while Rentable Square Footage is the common area that tenants use and maintain. RSF is determined by taking the overall square footage that tenants use and dividing it by the square footage of the entire property. Here is how you find the common area and the RSF. For example, a building has 130,000 square feet and 30,000 square feet of common area. The common area factor would be 23.1%. Then, you can find the RSF.
- 4,000 USF x 23.1% common area= 668 square feet of common area
- 668 square feet + 4,000 USF= 4,668 RSF
Each commercial property deal is different, but there are three common types of lease structures.
- Triple Net– Tenants pay for their rent and share of maintenance, insurance, and taxes that are in the common area of the building. The total expense can change every year. It is mostly used for retail spaces and tenants that pay their utilities.
- Full-Service Gross– This lease has everything included, and tenants do not pay anything extra. The landlord pays for all common area maintenance, utilities, etc. This is usually used for office spaces.
- Modified Gross– These leases are a hybrid of the triple net and full service. The landlord may not pay for certain expenses. For example, the quote may be $28.00 per square foot modified gross, net of utilities. This means that the tenant would have to pay the utilities in their room.
Different lease structures, USF, and RSF help you calculate commercial property rent a little easier. These methods are also why using an overall monthly approach does not work in almost all cases. Lease structures and how you calculate rent can also be dependent on what state you live in. If you need help with your commercial property, schedule a 1:1 demo with STRATAFOLIO today!