the Cost of Leasing Office Space
Leasing office space can be a significant expense for your business. However, many factors will determine whether or not you can afford it.
This guide will help you understand what to expect when you lease office space. It also explains how to make sure you pay only for what you need.
Calculate the Space in Your Office
This is the most important decision you will make when you start your search for an office. But, of course, it depends on whether or not you are receiving clients. An average rule of thumb is to give employees 150-200 square feet of space.
Do the math
The rental price for commercial real estate is listed as a per-square-foot cost per month or per annum. To calculate commercial rent, multiply the price by the total square footage of the office space.
Divide the annual rental price by 12 to get your monthly base rent. You will notice that we used base rent. This is because different types of commercial leases, such as triple net or percentage leases, will include different forms and amounts of inducements and fees. These combine to determine your monthly outlay. See below for details on each type of lease.
There is a distinction between rentable and usable square footage in commercial real estate.
Useable square footage
This is the area that your staff can only use.
Rentable square footage
Besides your office space, the rentable square footage also includes common areas your landlord allows you to use, such as reception areas, elevators, and stairs.
Loss factor
This is determined by calculating the percent difference between usable and rentable square footage.
Factors that Determine Office Rent
Other factors can also impact the monthly rent for your office.
Size:
It is important to consider the needs of your company and staff before renting a large space. If you outgrow your space, it may be costly to move later. You will need flexible office space if you plan to grow your business.
Building Quality:
Everything from the building's age to the inclusions and features will determine the rents available. For example, modern office buildings may be Energy Star certified or have other high-tech upgrades to attract office tenants. While a building with fewer amenities may be more desirable, it might have lower rents and be located in less desirable areas.
Location:
Like all things real estate-related, location is everything. It is more expensive to rent a space that is closer to the center of town. Your monthly rent will rise if your office space is located in a high-demand area or offers other perks to your employees.
Type of Lease:
Commercial leases come in three basic types: gross, percentage, and net leases, which have two subcategories--double net leases and triple net leases. A full-service or gross lease is the simplest. It charges the tenant a monthly gross lump sum. Percentage leases are common in retail centers. They charge tenants a percentage of their gross sales and a base rent. A net lease combines the base rent and other building-related expenses. A net lease usually has a lower base rent than a gross lease. However, the total amount increases as "net" fees are added. Double net leases are often marked "NN" in property listings. They charge tenants a base rent and a portion of property tax and the tenant's share for insurance premiums. In addition, tenants are responsible for their utilities and janitorial costs. Tenants pay a triple net (or "NNN") lease, which includes base rent and utilities as well as janitorial and insurance premiums. Common Area Maintenance (aka CAM) fees are also included in the rental agreement.
The best decision you can make to ensure your business is successful is to lease affordable and suitable office space. You will be rewarded for your decision-making.
