Understanding Commercial Rental Rates

Woman using calculator with doing finance, commercial rental, lease, cost or rate

Here we've simplified a summary of rental rates and calculating the monthly cost of space.

While you've probably figured out how to price your commercial leasing based on property values and other components that affect your cost, there are additional things to take into account as you price your properties. Other factors that determine the effective monthly rent include:

  • Tenant improvement costs
  • Free-rent
  • Abated rent
  • Amortization schedules

Rental rates are also called “Asking Rents” or “Lease Rates.”

Industrial Rental Rates

Industrial properties are quoted differently than Retail and Office. Industrial space is quoted on a per square foot, per month basis. Also, Industrial spaces typically have two components: a portion of the space that is considered “warehouse” and another portion that is “office.” Each portion of the space is calculated at a different rate.

Calculation: (Whse SF * Whse Rate) + (Off SF * Off Rate) = Monthly Rent

Example:

Unit A is 10,000 SF total.

9,000 SF is Warehouse (whse) at $0.45/SF per month: 9000 * 0.45 = $4050/mo

1,000 SF is Office space (off) at $0.90/SF per month: 1000 * 0.90 = $900/mo

10,000 SF Total. The combined rate is called the “Blended Rate”: $4,950/mo

Office and Retail Rental Rates

Rates for Office and Retail space are quoted on a per square foot/per year basis.

Calculation: (SF * Rate)/12 months = Monthly Rent

Example:

Unit A is 2,000 SF at $15.00/SF per year: (2000 * 15)/12 = $2,500/m