How to Calculate Commercial Rent per Square Foot

Commercial rent in the US is usually quoted as a price per square foot per year, even though it is paid monthly. The core formula is simple: multiply the total annual rate by the rentable square feet, then divide by 12.

All the numbers in this guide are hypothetical, for illustration. They show the arithmetic and are not market rents.

1. Start with the annual rate: $30.00 per rentable square foot.
2. Multiply by the size of the space: $30.00 times 3,000 square feet is $90,000 a year.
3. Divide by 12 for the monthly rent: $90,000 divided by 12 is $7,500.

To reverse it and find the rate from what you pay, multiply the monthly rent by 12 and divide by the square feet. $7,500 times 12 is $90,000, and $90,000 divided by 3,000 is $30.00.

Before any math, check how the quote is stated. "Per square foot" alone leaves out the time period, and the difference is a factor of 12.

• Annual to monthly per square foot: divide by 12. $30.00 a year is $2.50 a month.
• Monthly to annual per square foot: multiply by 12. $2.50 a month is $30.00 a year.
• Monthly rate to monthly rent: multiply by the square feet. $2.50 times 3,000 is $7,500.

Annual quotes are the US norm, but you may come across monthly figures, particularly with small suites and listings written in a different style. Treat a surprisingly low number as a prompt to check the period. A figure of "$2.50" that looks like a bargain is the same as $30.00 a year.

When you compare listings, convert every quote to the same basis first: annual dollars per rentable square foot, with the lease type noted beside it.

Rent is generally charged on rentable square feet, which is your usable space plus a share of the building’s common areas. If a listing or a floor plan shows a different figure from what you measured, this is likely the reason. Calculating from interior walls alone can understate it.

To convert, use the building’s load factor. With a hypothetical load factor of 1.20, 2,500 usable square feet is 3,000 rentable square feet.

Rent per usable square foot is often the more revealing number. A $90,000 rent on 2,500 usable square feet is $36.00 per usable foot, even though the quoted rate is $30.00. Two buildings with the same quoted rate can have different effective costs per foot you can actually use. Our guide to load factor shows that calculation in more detail. Also check how the rentable figure was measured, and which standard the lease uses, because a remeasurement can change your rent and your share of expenses.

The formula above assumes the rate covers what you are paying for. In a net lease, it does not. A quote of $20.00 NNN means $20.00 of base rent, with taxes, insurance and maintenance on top. Using a hypothetical $8.00 of estimated nets on the same 3,000 square feet:

1. Add base rent and the nets: $20.00 plus $8.00 is $28.00 per square foot.
2. Multiply by the area: $28.00 times 3,000 is $84,000 a year.
3. Divide by 12: $84,000 divided by 12 is $7,000 a month.
4. Note the split: $5,000 is base rent and $2,000 is the estimated nets.

That $2,000 is an estimate that is usually reconciled against actual costs after year end. Next, add what neither number covers. Depending on the lease, that can include suite electricity, in-suite cleaning, after-hours HVAC, parking and repairs to equipment that serves only your space.

For a gross lease, the quote includes more, so the formula on its own comes closer to the cost. Even so, check for a base year or expense stop, since you may pay your share of cost increases above that level.

Your first-year rent is not your rent for the term. Most commercial leases include scheduled increases, set as a fixed percentage, a fixed dollar step or an index. To see the real commitment, build out the rent year by year.

Assume $30.00 in year one on 3,000 square feet, rising by a hypothetical 3 percent a year.

• Year 1: $30.00, or $90,000.
• Year 2: $30.90, or $92,700.
• Year 3: $31.83 after rounding, or $95,490.

Adding the three years gives $278,190. Concessions change the picture too. If the same lease offered two months free in year one, base rent that year would fall by $15,000, and the average annual cost would be lower than the quoted rate suggests. Net effective rent spreads those concessions across the term, and our guide on comparing proposals covers it.

• ✓Is the quoted rate per year or per month?
• ✓Is the square footage rentable or usable, and how was it measured?
• ✓Is the quote gross, modified gross or net?
• ✓If net, what are the current estimates for taxes, insurance and maintenance?
• ✓If gross, is there a base year or expense stop?
• ✓Who pays for suite electricity and cleaning?
• ✓What are the scheduled rent increases?
• ✓What concessions apply, such as free rent or an improvement allowance, and what conditions come with them?
• ✓Are there charges for parking, after-hours HVAC or other services?

Once you have those answers, the calculation is simple, and it can be repeated for every option on your list. Doing so is usually the point at which a low rate stops looking low. At Tenant Advisory Group we represent tenants and put every proposal on the same basis this way, so a client compares total cost over the term and not headline rates. Your CPA can advise on how the payments are treated on your books.