How to Determine Prices for Commercial Rental Space

Written by dr. r. a. benson | 13/05/2017
How to Determine Prices for Commercial Rental Space
When pricing a commercial rental space consider the surrounding area. (Thomas Northcut/Photodisc/Getty Images)

Unlike residential property rental rates, commercial rent is commonly quoted in terms of price per square foot. Often included in commercial rental costs, are operating expenses--referred to as common area maintenance (CAM). CAM covers any upkeep/beautification to the outside area and any lobby or office cleaning services provided by the landlord. While there are a variety of factors to consider when pricing a commercial rental space, start by considering the area market, to help gauge what rates are acceptable.

Calculate the square footage of the rental space. To calculate this, measure the length and the width of the space and multiply these numbers together. The product of this equation is your square foot measurement.

Determine the average rental rate in your area. Contact real estate agents, landlords and tenants to determine what the average cost for rent is in the surrounding area for spaces with similar sizes. You do not want to price yourself out of the market, so the rate needs to be comparable to the other rental units.

Decide what the rental fee will cover. Consider the monthly cost of the mortgage, property tax and insurance first when factoring rental rates, and multiply this number by 12--giving your annual cost. Also, calculate the projected maintenance fees associated to landscaping, snow removal, cleaning and other related maintenance services that you will provide for the tenant--these expenses make up your CAM figure. Add these numbers with the amount of profit you wish to see from the unit, and you have your annual rental fee.

Calculate the rental space's cost per square foot. Divide the annual rental cost in Step 3 with the square footage calculation from Step 1. For instance, if you have a square footage calculation of 4,000 square feet, and an annual rental cost of £32,500 the cost is £8.10 per square foot.

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