When an investor calculates the monthly rent for a residential property, it is common for all of the square footage the property offers to be priced at one rate. Most residential properties are not priced per square foot, which eliminates the need for any complicated math. Commercial properties are different and often require two different types of calculations to determine overall monthly rent. If you are looking to rent commercial space for your business, then you need to understand how commercial rent is calculated.
Usable Square Feet
Usable square feet is that part of your commercial rental space that only you will be using. It would include your office space, conference room, break room, rest rooms and any other part of a building that only your company can use. If you are renting an entire building, then all of the square footage is considered usable. This is an important distinction that we will discuss later.
Rentable Square Feet
The part of an office complex that your company uses in conjunction with the rest of the tenants in the building is called the common area. Commercial property owners use various complex mathematical formulas to calculate common area and you should try to understand those calculations as much as possible. The common area combined with the usable square feet is called the rentable square feet.
Calculating Commercial Rent Per Square Foot
Most commercial property owners have one rate for usable square feet and a separate and lower rate for common areas. The rentable square feet is rarely used to calculate the monthly rent. Instead, the formula for monthly commercial rent is:
Commercial Rent For An Entire Space Per Month = (usable square feet x usable square feet rate per month) + (common area x common area rate per month)
Factors That Affect Rates
Commercial real estate is graded on a scale of A to D, with A being the best properties and D being the least desirable. Most commercial property owners will set rates depending on the length of the lease and the grade of the property. Commercial tenants will find that the longer the lease is they are willing to sign, the lower their overall commercial rent per square foot will be.
Common Space In Single Units
Earlier we mentioned the conditions of a lease if the tenant is renting an entire building. The rental rate for common areas is often much lower than the rate for usable square feet. When a tenant rents an entire building, they are often charged only the usable square foot rate for the entire property because no other tenants will be using what would be considered common areas. This is just one reason why many companies prefer to rent space in larger complexes.
As a business owner, you need to understand the basics of calculating commercial rent per month if you want to be sure you are getting a good deal. By understanding the difference between usable and common space, you can save your company money on commercial rent each and every month.