How Are Commercial Real Estate Lease Rates Quoted?

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for sale or leaseWhen looking  for commercial space to lease for your business, it is important to know how the lease rates will be calculated. In the world of commercial real estate, lease rates are set based on a number of factors, with two of the most important being the building’s location and the square footage of the area covered by the space or property you wish to lease. These two factors affect commercial real estate lease rates significantly, especially when it comes to location.

Location

Depending on where you are, the land rates are bound to differ due to market rates and the resulting demand for different areas. Should a commercial property be located in a more desirable, high demand area, the price per square foot will definitely be higher compared to other areas where land pricing is lower.

Square Footage

Depending on how big the property is, the price per square foot can vary. Larger properties will generally lease at lower rates, on a per square foot basis, as compared to smaller properties. This is, of course, still dependent on the overall value of property.

Pricing Per Square Foot Per year

In the Eastern United States, most commercial real estate leases are quoted on a per square foot per year basis. The basic calculation is simple. Simply take the value or the price of the property and divide it by the available square footage. This will give you the price per square foot value for the lease. This amount is the base rent for the property you are about to lease.

Types of Leases

When the term ‘gross’ is used in the description of the rent per square foot, it indicates that the price is calculated with the square footage of the perimeter where you are leasing, and including your share of the common areas (lobbies, elevators etc). A “single net” or “net lease” means that you will be responsible for paying property taxes, while a “triple net” lease indicates that you will pay for the building’s base rent, including the property tax, insurance and building maintenance. “Modified gross” leases include all other net charges per square foot per year except for utilities. And a “Full Service” lease includes your base rent and all additional net charges and utilities.

In Summary

The terminology used in commercial real estate leases can be confusing. Use these simple rules to guide you in evaluating your commercial lease:

  • The price per square footage is calculated as the value of the property divided by the square footage that is either rentable or the gross value that includes the entire perimeter
  • Single Net indicates that the lessee is responsible for the property tax while Triple Net indicates the the lessee is responsible for tax, maintenance and property insurance and utilities
  • A Modified Gross rate indicates that the indicated price per square footage per year/month is inclusive of a triple net calculation but not utilities
  • A Full Service rate includes everything

Still confused? Just give us a call at (301) 655-8253 and we’ll be happy to walk you through it!

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