Tue, May 07
How To Calculate Office Space Rent – Average Commercial Rental Rates
By Office space brings to mind that exciting turning point one reaches
In this case, office space brings to mind that exciting turning point one reaches as an entrepreneur or small business owner. It’s the sought-after space when you’re ready to establish some type of roots, and take your business to the next level.
Now there are several reasons why you may seek office space, and several things to keep in mind when looking for perfect office space. For instance, you may be growing tired of the noise at your local coffee shop; you may yearn for human interaction; or you may want a more professional location to meet and interact with clients. In any case, leasing office space is a significant business expense.
Just think, when you set out to become an entrepreneur or build a business, an expense such as office rent per square foot was likely the furthest thought from your mind, but now that your business is at this point, your budget for office space is more important than ever. As a business owner, especially solo-preneurs, business expenses should stay top of mind. And, the costs associated with leasing office space are no exception.
In comparison to purchasing a location outright, a commercial lease month to month is more cost-effective for both small business owners and entrepreneurs, alike. Not only that, it’s advantageous for a number of reasons.
Some pros to leasing office space include (*pending lease terms):
Fewer obligations regarding maintenance and repairs, management, and utilities
Simpler paperwork when it comes to filing taxes
Possible tax credits and deductible payments
Allows for flexibility, as you’re not tied to a physical location for a lengthy amount of time
Freed working capital, allowing you to respond and take advantage of market opportunities
Per the location in which you’re searching for office space, rates may be negotiable if rentals are plentiful
As you’re contemplating leasing office space, a few of the aforementioned may resonate with you and your situation. Yes, the ‘pros’ are wonderful, but there are other considerations to be mindful of – one being your budget and having a rough idea of the average commercial rental rates.
According to an article on WTOP.com, citing data from CBRE and Cushman & Wakefield, average per square foot rent varies from state to state, city to city, and country to country.
How to Calculate Office Space Rent
Midtown Manhattan ranks #1 in cost at $154 annual rent/sq. ft., while Boston (#5) and San Diego (#11) come in at $77 and $54, respectively.
Globally, Hong Kong tops the list at $269 annual rent/sq. ft., whereas Shanghai (#5) and Moscow (#11) cost $120 and $80, respectively.
Depending on your location, true sticker shock may occur, but it’s up to you to determine if it’s worth it.
It’s a good idea to acknowledge average rental rates, just to be “in the know”, but it is imperative to know the commercial price per square foot, and how to calculate office space rent.
Because a large portion of your working capital will be dedicated to your rental costs, as well as other expenses, knowing how to calculate office space rent cannot be stressed enough.
Typically, the price per square foot on a commercial lease will be quoted as a monthly rate or an annual rate. Having said that, below are examples of two different calculations to use when comparing alternative properties and determining your base rent.
Office space = 3300 sq. ft.
Asking rental rate per sq. ft. = $17.08
Formula = Office space x Asking rental rate = Yearly rental amount
3300 X $17.08 = $56,364 base rent per year
Take the same formula and divide the base rent per year by 12 months.
3300 X $17.08 = $56,364 base rent per year/12 months -> = $4,697 monthly base rent
Be mindful, your monthly base rent may not be your final monthly cost. In some cases, you may be responsible for additional operating expenses.
Remember, property owners are aware of how much to charge for commercial property in a specific area and location; they want to receive their asking price, all while making a profit.
For this very reason, review your tenant contract very carefully. If there are confusing clauses and terms, do not hesitate to ask for clarification and/or enlist a lawyer. Renting office space is a big deal, particularly for entrepreneurs and small business owners.
Aside from knowing how to calculate office space rent, whether using a pen, paper, and a calculator or an online tool, such as a business lease calculator, knowing your budget and how much office space you need is key as you begin your search.
If you have any questions about office rentals in San Francisco, landlord property services, or are in the market for an office space for startups, feel free to reach out to Thomas Mensendiek – your go-to San Francisco commercial real estate expert!