What Is the Average Cost for Retail Space per Square Foot?

shapecharge/E+/GettyImages

The old adage about real estate – location, location, location – is a huge factor in the average cost for retail space per square foot. City or small town, bustling hub or side street, sunny side or shady side – these determine local average prices. It can be worth paying more for a location if it translates to higher foot traffic. For destination stores, however, it may pay off to be slightly off the well-trodden path.

TL;DR (Too Long; Didn't Read)

Retail spaces in Greater New York are a great example of just how much location influences prices. In St. George on Staten Island, space could be had for as little as $10 per square foot, but just 40 minutes away, on Manhattan’s coveted Upper Fifth Avenue, shops shell out as much as $3,900 per square foot on the world’s second-most expensive retail street.

Main Considerations

A stand-alone store doesn’t get the built-in bonus of established foot traffic that a well-positioned store in a mall gets, and this often translates to a lower cost per square foot. Being located off a highway exit ramp makes space more affordable than being tucked in on a popular pedestrian street. But each of these spaces is ideal for different shops.

Among the many questions you need to ponder are: Is parking included? Will you pay the landlord’s common-area maintenance on mall throughways or the parking lot upkeep? Will the landlord charge you for damage insurance? These can all be add-ons on top of the listed price per square foot, but they should be included in your calculations.

Retail space prices vary from street to street, let alone city to city and state to state. For example, Lincoln, Nebraska, prices could be prohibitive regionally, but be a laugh for a Manhattan business owner. It’s imperative that you know the local costs and what sales per-square-foot capabilities are in your industry regionally because this old adage applies to retail space, too: Waste not, want not. Don’t pay for space you can’t convert to income, basically.

Leasing a Space

Retail spaces in Greater New York are a great example of just how much location influences prices. In St. George on Staten Island, space could be had for as little as $10 per square foot, but just 40 minutes away, on Manhattan’s coveted Upper Fifth Avenue, shops shell out as much as $3,900 per square foot on the world’s second-most expensive retail street.

Meanwhile, Miami’s Lincoln Road is the country’s sixth-strongest retail location, and retailers there pay an average of $350 per square foot. Number 10 on that list is Highland Park Village in Dallas/Fort Worth, at an average of $175 per square foot. When leasing, the price per square foot is usually an annual lease price, so it takes some math to get the monthly total: Multiply the number of square feet in the space by the price per square foot, then divide by 12. The result is $28 per square foot for a 978-square-foot space that works out to $2,282 per month.

A Case Study in Cleveland

For perspective on highs and lows in a typical city, consider Cleveland, where retail vacancies are rising in a stagnant economy. Stagnation impacts prices from neighborhood to neighborhood as residents move out, streets get run down and traffic patterns change. Meanwhile, other areas, particularly in the suburbs, grow as people look into neighborhoods they perceive as being better for their lifestyle.

Cleveland's early 2017 regional average on retail space was $12.13 per square foot thanks to an average of an 11 percent vacancy rate in city-wide retail spaces. As with any city, vacancies drastically impact prices and are a great leveraging factor in negotiations. An area of Cleveland with 26 percent vacancy is asking under $8 per square foot, but where there’s only 1.5 to 3 percent vacancy, landlords are asking between $22 and $25.88 per square foot. It's all about supply and demand.

Price Isn’t All That Matters

A great rate on a retail space can be misleading. What’s the point of paying $7 per square foot if you can’t get customers to visit? What if they consider the area unsafe? Can they park their car without worrying about a break-in? What’s commuter transit like in the area? Are there other shops that will give customers reasons to spend time nearby?

The prospective clientele of a business should factor into your space decisions. Hip young customers are unlikely to shop in ritzy, upscale 'hoods, so finding a midrange space is likely better suited than the pricey $25.88 per square foot paid in Beachwood, Cleveland. Meanwhile, aging customers are less likely to visit places that don’t have allotted parking spots or that require walking great distances.

Research Is Everything

It’s the would-be shop owner's responsibility to research regionally, right down to street level, to ensure getting a great rate. It helps to work with a savvy commercial real estate agent who doesn’t just spout stats, but can back up claims with documentation. But keep in mind the agent has something to gain from the transaction, so do independent research, too. A reference desk at any urban library should have recent periodicals detailing sales and leasing prices. Regional newspapers are great sources for recent market trends, but so is monitoring rates in areas you’re interested in. Subscribe to local commercial real estate newsletters and keep an eye on price trends.

Have an idea of conservative sales figures per square foot possible for your business and do a cost-benefit analysis of rent versus sales. Specifically look for comparisons between similar business types. Understand what foot and car traffic is like in that region year-round. A beach-side street might do killer business from May to September, but there’s a big reason why shops board up and go fishin’ in January.

Ultimately, with good knowledge of local prices, retail trends and traffic for specific areas in your region, along with an understanding of local sales per square foot, you can find a promising retail space that’ll allow your business to thrive.

References

Resources

About the Author

Steffani Cameron is a professional writer who has written for the Washington Post, Culture, Yahoo!, Canadian Traveller, and many other platforms. Some writing projects have included ghost-writing for CEOs and doing strategy white papers. She frequently writes for corporate clients representing Fortune 500 brands on subjects that include marketing, business, and social media trends.