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How to Calculate Commercial Rent [Price Per Square Foot Simplified] - YouTube
Channel: Tyler Cauble
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today I'm gonna teach you everything you
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need to know to calculate commercial
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rent and since every lease is different
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meaning all rents are calculated
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differently we're going to cover the
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difference between useful and writable
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square footage the differently
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structures and their impact on rent
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calculations and be sure to stick around
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to the end where I'll give you a link to
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use a calculator that I put together so
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that you can calculate your rent
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payments commercial real estate much
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like many other industries is ramp it
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with its own unique lingo words like
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triple net and cap rate or thrown around
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as if they're common knowledge but if
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you're not a commercial real estate you
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likely won't be able to keep up with the
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various terms and calculating commercial
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rent can be just the same when a
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commercial real estate broker or a
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property owner tells you that their
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property is $32 per foot triple net what
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does that actually mean wouldn't it be
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easier if it was just given on a total
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monthly amount instead of a per square
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foot basis well yes and now commercial
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rents are calculated on a price per
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square foot basis because more often
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than not spaces may be divided or
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combined
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these numbers give industry
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professionals a quick snapshot to
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compare rent prices among various
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properties after all five thousand
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dollars per month doesn't tell you how
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big the space is or what else may be
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included in the base rent here's the
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math behind calculating your rent by
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square footage in Nashville where I'm
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based and throughout most of the country
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commercial rents are quoted on an annual
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basis however in other parts of the
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country like California they may quote
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rents on a monthly basis so it's
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important to know how rent is calculated
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in your area before diving into these
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calculations let's take our previous
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example of $32 per square foot which is
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your annual rental rate if your
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commercial space is 3,000 square feet
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here's how to calculate your rap price
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per square foot times total square feet
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equals total annual rent so you multiply
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the price per square foot by the total
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square footage and that will give you
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your annual rent for example thirty two
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dollars per square foot times 3000
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square feet equals 96 thousand dollars
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per year divide that by twelve for your
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total monthly rental rate of eight
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thousand dollars well it may now seem
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easier to calculate your monthly rental
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rate it can actually get far more
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complicated let's discuss usable versus
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rentable square footage depending on the
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amount of tenants and common area in the
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property you may be quoted on a usable
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square-footage usf or writable
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square-footage RSF basis usable square
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footage is the amount of space that you
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alone can occupy and utilize while
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writable square footage adds in any
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common areas that all tenants have
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access to and must therefore maintain
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writable square footage is calculated by
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taking the total square footage shared
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by all the tenants and dividing it by
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the total square footage of the property
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an office building for example may be a
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hundred and twenty thousand square feet
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with twenty thousand square feet of
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common areas these are your lobbies
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hallways restrooms and more which gives
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it a 16.7% common area factor your
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common area factor which determines each
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tenants share of the common area on a
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pro-rata basis is then used to calculate
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the writable square footage per our
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previous example 3,000 usable square
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feet times 16.7% common area factor
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equals 501 square feet of common area
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you would add that 501 square feet of
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common area to your 3,000 usable square
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feet which gives you a total of 3,500
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and one rentable square feet and a
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rentable square footage scenario tenets
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are responsible for paying rent on their
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share of the common areas so in this
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scenario that $32 per square foot would
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actually be multiplied by the rentable
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square footage to give the tenant their
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annual rent bringing it to 3501 rentable
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square feet times $32 per square foot
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which equals a hundred and twelve
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thousand dollars per year or a little
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over ninety three hundred dollars per
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month since most retail tenants unless
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they're an indoor shopping mall and
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share hallways bathrooms and so forth
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are the sole occupants of their spaces
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writable square footage is more common
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in office buildings by the way I'm using
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thirty two dollars per square foot
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because that's right around we're new
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retail spaces available for lease in
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Nashville
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what does commercial space cost to rent
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in your market let me know in the
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comments below but that's not everything
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that could impact your rent calculations
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you also need to understand the
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structure of the lease unlike
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residential contracts and forms which
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have largely been regulated and
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standardized by the National Association
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of Realtors every commercial deal is
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different however there are three
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primary types of commercial lease
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structures triple net or net net net
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triple net leases are given in a base
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rent plus additional rent format tenants
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are responsible for paying their base
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and their share of the common area
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maintenance property taxes and building
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insurance these triple net expenses are
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also quoted on a square footage basis so
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you might be quoted thirty two dollars
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per square foot triple net with an
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estimated three dollars per square foot
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and triple net expenses these expenses
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are annual estimates for the total
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maintenance of the property and they're
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not intended to be a profit Center for
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the landlord so it's very important as a
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tenant to review your triple net
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expenses when leasing commercial real
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estate while your property taxes and
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building insurance may not change from
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year to year common area maintenance can
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so your triple net fees may actually
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fluctuate on an annual basis triple net
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lease structures are most common in
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retail and tenants are also responsible
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for their own utilities full-service
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gross or FSG full-service leases are
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quoted on an all-in basis so tenants are
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not responsible for any expenses above
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and beyond this quoted rate which makes
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it very simple for both landlords and
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tenants to understand the landlord
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collects one fee and is responsible for
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paying common area maintenance taxes
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insurance utilities any other expenses
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that are associated with the property
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with this lease structure you might be
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quoted thirty two dollars per square
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foot full service these leaf structures
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are most commonly found in office
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properties but can be utilized on any
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type of commercial real estate due to
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their simplicity modified gross or mg
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modified gross leases are often a hybrid
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of triple net and full-service leases
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landlords may pass on any number of
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expenses in a modified gross lease such
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as utilities common area maintenance
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janitorial etc so you might be quoted
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thirty two dollars per square foot and
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modified gross net of janitorial in this
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scenario the tenant would be responsible
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for paying for the janitorial services
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within their suite net just means that
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that is a responsibility of the tenant
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as you can tell there are many different
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ways of calculating commercial rents per
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square foot based on the type of
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property lease structure and even which
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part of the country that you live n we
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definitely recommend you have an
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attorney alongside your commercial real
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estate broker to help you navigate
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through the leasing process now if
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you're looking for that lease calculator
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I've left a link to it in the video
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description below as you can see you can
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type in your rent per square foot the
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total square footage of the space and it
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will give you your monthly rents so
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there you have it for how to calculate
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commercial rent if you like this video
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please give me a thumbs up if you have
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any questions feel free to we
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comment below and I'll be sure to get
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back with you and if you're interested
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in more commercial real estate investing
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strategies leasing tips and market
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updates which let's be honest you're
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probably not since you watch this video
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all the way to the end smash that
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