Calculating the total cost per square foot of a rental property isn't easy. You need to know not only how much space you will be using and the rent for that space, but also the total size of the property, how much common area space the property has and the rent the landlord charges for common areas.
Calculating commercial rent per square foot is a lot more complex than calculating the price per square foot for a residential property. That's because commercial properties have a rent price for space a tenant actually occupies and a rate for common areas. Finding the total cost per square foot requires knowing the rent for the rented space, the rent for the common space, the total size of the building, the size of the tenant's area and the size of the common area.
Usable Space Versus Rentable Space
In most commercial properties, there are multiple tenants sharing one property, whether that means offices in an office building or shops in a mall. Each of these tenants pays a rent for the space they occupy, which is known as the usable space, but they also pay rent for a portion of the common area proportional to their part of the total property space. Common areas may include kitchens, bathrooms and hallways. The rented property plus the renter's portion of the common area is known as rentable space.
It is important to know both the usable and rentable space of a property to get an idea of how much you will be paying. The load factor can help. This can be calculated by dividing the total rentable space in the building by the total usable space. Once the load factor is calculated, you can multiply it by the total space you plan to occupy to figure out your total rentable space.
If, for example, a property is 10,000 square feet with 8,000 square feet of usable space, that means there are 2,000 square feet of common space and the load factor is 1.25. If you plan to rent 500 square feet of space, you will be paying for a total of 625 square feet. If you find a property that is 6,000 square feet with 5,000 square feet of usable space, the load factor would only be 1.2, so for the same 500-foot space, you would only be paying for 600 square feet of space. Of course, it might be worth paying more for a building with quality common areas, but you should at least be aware of what you're getting and how much extra you will pay for it.
Cost Per Square Foot
To calculate the usable cost-per-square-foot, you need to divide the total rent for the office or shop space you will be occupying by the total usable square footage. For example, if you're renting a 500 square foot space for $1,500 a month, you will be paying $3 per-square-foot.
Unfortunately, the usable cost per square foot equation only tells part of the story since it doesn't include the rent a business pays for common areas. Calculating the total rentable cost per square foot is more complex because landlords often charge a different, lower rate for common areas. In order to calculate the total rent per square foot, you will need to know what your portion of the common area will be by using the load factor and you will need to know what the landlord charges for rent in common areas.