Whether considering opening a new business or moving an existing one, the cost of retail space per square-foot is critical in project planning. In a challenging economy, it is often easy to find available space. With supply greatly outpacing demand, the pressure to reduce purchase prices and rents and to be creative in contracts is abnormally high. Determining the average cost can be challenging due to several factors.
General Determining Factors
There are several critical factors that determine the cost of obtaining retail space whether buying or leasing it. Location is the most critical factor. Locating your business near or on a highway, near highly-trafficked retail stores or establishments or near other places that naturally bring customers near your location increases the average cost. Other critical determining factors are improvements such as customer and employee parking, loading docks and electrical or networking improvements. The motivation of the property owner also plays into the price.
Leasing a retail location varies dramatically from as little as a few dollars per square-foot to as high as $2,000 or more per square foot on 5th Avenue in New York City. A 2010 study of commercial rental space in the fastest growing U.S. market, Dallas-Fort Worth, cited an average lease of $13.75 per square-foot per month. A study of Toledo, Ohio, cites a falling rate of $15.31 per square-foot in early 2011. San Francisco boasts the highest lease rate increase over last year citing $40.06 per square-foot in 2011. The Wall Street Journal reported that the average lease rates at U.S. malls was $38.77 per square-foot per year while strip malls averaged $16.54,
Commercial Purchase Price
Purchase prices are similar as well, ranging from a few dollars per square-foot to $8,361 per square-foot in Manhattan. Cassedy Turley cites a Real Capital Analytics study stating "office sales volume registered at $17.9 billion in the first 5 months of 2011, up 126 percent from the same period a year ago. Average price per square foot registered at $211 in May, up 25 percent from a year ago."
When evaluating the rental amounts, remember that some real estate marketers will quote the price per square-foot per month and others will offer the yearly computation. Evaluate the terms of the lease or sale carefully. In lease contracts, many landlords include a "triple net" clause that exempts them from repairing your building or parking lot and requires you to pay the property taxes on the facility. Verify exactly how much space you are buying or leasing as many will list the building's outside dimensions. Therefore, when you lease a 5,000 square-foot facility, you may only have 4,500 square-feet of usable space.