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How to Calculate Commercial Rent [Price Per Square Foot Simplified]

today I'm gonna teach you everything you

need to know to calculate commercial

rent and since every lease is different

meaning all rents are calculated

differently we're going to cover the

difference between useful and writable

square footage the differently

structures and their impact on rent

calculations and be sure to stick around

to the end where I'll give you a link to

use a calculator that I put together so

that you can calculate your rent

payments commercial real estate much

like many other industries is ramp it

with its own unique lingo words like

triple net and cap rate or thrown around

as if they're common knowledge but if

you're not a commercial real estate you

likely won't be able to keep up with the

various terms and calculating commercial

rent can be just the same when a

commercial real estate broker or a

property owner tells you that their

property is $32 per foot triple net what

does that actually mean wouldn't it be

easier if it was just given on a total

monthly amount instead of a per square

foot basis well yes and now commercial

rents are calculated on a price per

square foot basis because more often

than not spaces may be divided or

combined

these numbers give industry

professionals a quick snapshot to

compare rent prices among various

properties after all five thousand

dollars per month doesn't tell you how

big the space is or what else may be

included in the base rent here's the

math behind calculating your rent by

square footage in Nashville where I'm

based and throughout most of the country

commercial rents are quoted on an annual

basis however in other parts of the

country like California they may quote

rents on a monthly basis so it's

important to know how rent is calculated

in your area before diving into these

calculations let's take our previous

example of $32 per square foot which is

your annual rental rate if your

commercial space is 3,000 square feet

here's how to calculate your rap price

per square foot times total square feet

equals total annual rent so you multiply

the price per square foot by the total

square footage and that will give you

your annual rent for example thirty two

dollars per square foot times 3000

square feet equals 96 thousand dollars

per year divide that by twelve for your

total monthly rental rate of eight

thousand dollars well it may now seem

easier to calculate your monthly rental

rate it can actually get far more

complicated let's discuss usable versus

rentable square footage depending on the

amount of tenants and common area in the

property you may be quoted on a usable

square-footage usf or writable

square-footage RSF basis usable square

footage is the amount of space that you

alone can occupy and utilize while

writable square footage adds in any

common areas that all tenants have

access to and must therefore maintain

writable square footage is calculated by

taking the total square footage shared

by all the tenants and dividing it by

the total square footage of the property

an office building for example may be a

hundred and twenty thousand square feet

with twenty thousand square feet of

common areas these are your lobbies

hallways restrooms and more which gives

it a 16.7% common area factor your

common area factor which determines each

tenants share of the common area on a

pro-rata basis is then used to calculate

the writable square footage per our

previous example 3,000 usable square

feet times 16.7% common area factor

equals 501 square feet of common area

you would add that 501 square feet of

common area to your 3,000 usable square

feet which gives you a total of 3,500

and one rentable square feet and a

rentable square footage scenario tenets

are responsible for paying rent on their

share of the common areas so in this

scenario that $32 per square foot would

actually be multiplied by the rentable

square footage to give the tenant their

annual rent bringing it to 3501 rentable

square feet times $32 per square foot

which equals a hundred and twelve

thousand dollars per year or a little

over ninety three hundred dollars per

month since most retail tenants unless

they're an indoor shopping mall and

share hallways bathrooms and so forth

are the sole occupants of their spaces

writable square footage is more common

in office buildings by the way I'm using

thirty two dollars per square foot

because that's right around we're new

retail spaces available for lease in

Nashville

what does commercial space cost to rent

in your market let me know in the

comments below but that's not everything

that could impact your rent calculations

you also need to understand the

structure of the lease unlike

residential contracts and forms which

have largely been regulated and

standardized by the National Association

of Realtors every commercial deal is

different however there are three

primary types of commercial lease

structures triple net or net net net

triple net leases are given in a base

rent plus additional rent format tenants

are responsible for paying their base

and their share of the common area

maintenance property taxes and building

insurance these triple net expenses are

also quoted on a square footage basis so

you might be quoted thirty two dollars

per square foot triple net with an

estimated three dollars per square foot

and triple net expenses these expenses

are annual estimates for the total

maintenance of the property and they're

not intended to be a profit Center for

the landlord so it's very important as a

tenant to review your triple net

expenses when leasing commercial real

estate while your property taxes and

building insurance may not change from

year to year common area maintenance can

so your triple net fees may actually

fluctuate on an annual basis triple net

lease structures are most common in

retail and tenants are also responsible

for their own utilities full-service

gross or FSG full-service leases are

quoted on an all-in basis so tenants are

not responsible for any expenses above

and beyond this quoted rate which makes

it very simple for both landlords and

tenants to understand the landlord

collects one fee and is responsible for

paying common area maintenance taxes

insurance utilities any other expenses

that are associated with the property

with this lease structure you might be

quoted thirty two dollars per square

foot full service these leaf structures

are most commonly found in office

properties but can be utilized on any

type of commercial real estate due to

their simplicity modified gross or mg

modified gross leases are often a hybrid

of triple net and full-service leases

landlords may pass on any number of

expenses in a modified gross lease such

as utilities common area maintenance

janitorial etc so you might be quoted

thirty two dollars per square foot and

modified gross net of janitorial in this

scenario the tenant would be responsible

for paying for the janitorial services

within their suite net just means that

that is a responsibility of the tenant

as you can tell there are many different

ways of calculating commercial rents per

square foot based on the type of

property lease structure and even which

part of the country that you live n we

definitely recommend you have an

attorney alongside your commercial real

estate broker to help you navigate

through the leasing process now if

you're looking for that lease calculator

I've left a link to it in the video

description below as you can see you can

type in your rent per square foot the

total square footage of the space and it

will give you your monthly rents so

there you have it for how to calculate

commercial rent if you like this video

please give me a thumbs up if you have

any questions feel free to we

comment below and I'll be sure to get

back with you and if you're interested

in more commercial real estate investing

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