How to Determine Commercial Rent Rate

Commercial real estate is valued slightly differently from residential real estate. While residential postings may include information about the square footage of a home, the rent associated with the residence is not based on square footage but rather on comparable rents in the area. The key to determining the rental rate for commercial real estate is knowing the difference between usable square footage and rentable square footage.

Instructions

1. Research and familiarize yourself with the most recent guidelines for setting rent as outlined by the Building Owners and Managers Association (BOMA). These guidelines are considered the industry standard for commercial property rentals in the United States.

2. Figure out the difference between rentable square feet and usable square feet on your property. Rentable square feet is the number of square feet that a lessee actually uses; however, there can be other shared rooms that the lessee has access to as well. Common area include hallways, lobbies and stairwells. Most commercial leases use rentable square feet. Be mindful of this difference in your quote.

3. Divide the amount of square feet for common areas by all tenants. Each lessee should pay a share of the common area and all expenses associated with these areas. Add the fees associated with common areas to the fees associated with usable square feet to arrive at rentable square feet.

4. Walk through an example. Let's say you own a commercial property that is 1000 square feet (usable square feet). The price is $1 per square foot (SF). The rent for usable square feet would be $1,000 (1000 SF x $1). The common areas add up to 100 square feet, so the rent is based on 1,100 SF, not 1,000. Let's say you have four tenants. The cost per square foot is now $1 divided by 4, or 25 cents. The common area adds $25 (100 SF x $.25) to the square footage. The end result is 1,100 usable square feet for $1,025.

References

• BOMA