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
Calculating Rents
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.
how-to-calculate-office-space-rent
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.
Yearly costs:
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
Monthly costs:
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!