When it comes to leasing commercial property for your business, understanding how to calculate price per square foot is essential to make informed decisions and ensure that you’re getting the best value for your money. This article will provide a step-by-step guide on how to accurately determine the price per square foot of a commercial lease.

Step 1: Identify the Total Rentable Square Footage

The first crucial element to consider when calculating the price per square foot is determining the total rentable square footage (RSF) of the commercial property. This is usually provided by the landlord or can be found in the lease agreement. The RSF represents the overall space that your business will occupy, including any common areas shared among tenants.

Step 2: Identify the Base Rent

The base rent is typically expressed as an annual rate and is another crucial element to consider when calculating the price per square foot. The base rent for a commercial lease refers to the amount you pay for using the space itself, excluding additional fees like maintenance costs and utilities – which we will discuss later.

Step 3: Determine Rent per Square Foot

To calculate rent per square foot, take your annual base rent and divide it by your total RSF.

For example, if your annual base rent is $30,000 and your total RSF is 2,000 sq ft:

Rent per Square Foot = $30,000 ÷ 2,000 sq ft = $15 sq ft.

This means that you’ll be paying $15 per square foot as your annual base rent for the commercial lease.

Step 4: Understand Additional Costs

In many commercial leases, especially multi-tenant buildings, you may be required to pay additional fees referred to as common area maintenance (CAM) costs. These could include things like cleaning services, landscaping, security services, or even shared utilities. These costs are usually added to the base rent and often calculated on a pro-rata basis, according to the percentage of total building space your business occupies.

To calculate your share of CAM costs, multiply your total RSF by the CAM cost per square foot. To get the combined annual rent including CAM charges, add the CAM costs to the annual base rent.

Step 5: Calculate Monthly Rent

To get a clear understanding of your monthly expense on a commercial lease, divide the combined annual rent (base rent + CAM costs) by 12 months.

For instance, with an annual base rent of $30,000 and a total annual CAM cost of $4,000:

Annual Combined Rent = $30,000 + $4,000 = $34,000

Monthly Rent = $34,000 ÷ 12 months = $2,833.33

Conclusion:

Calculating price per square foot for a commercial lease involves understanding various essential components like rentable square footage (RSF), base rent, common area maintenance (CAM) costs, and their subsequent roles in lease calculations. Being familiar with these costs will help you make informed decisions and ensure you get the best value during lease negotiations.