Real Estate: Commercial Property and Office Rentals

When someone talks about “real estate” they are speaking about the industry as a whole, but you need to understand that though they are very similar, there are lots of different types of real estate. The most common piece of real estate is what you see every time you drive down your neighborhood or go to a friend or family member’s house, this is the part of real estate called “single family residences”. There are many different types we can talk about, but in this article we will only be discussing one type of real estate; commercial real estate and office leasing.

Commercial Real Estate

According to Wikipedia, commercial real estate denotes, “investment or income property) referring to buildings or land intended to generate a profit, either from capital gain or rental income.” These investment or income properties consist of any building which has 6 or more units from which the owner collects rent. This means that six-plexes, large apartment unit buildings, hotels, strip malls, and office space/mixed-use buildings are all commercial due to the amount of cashflow they bring in on a monthly basis. So, if an office building or mixed-used building is collecting rent every month, how does one calculate the office space rent?

There are many different calculators you can find on the internet to calculate office space rent.  Often people look at sites like http://sfofficespaces.com/how-to-calculate-office-space-rent-average-commercial-rental-rates/. But if you want to do it the old-fashioned way, or simply want to learn how to do it on your own before relying on the calculator, here are some of the equations used:

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Renting Per Square Foot

Whether you’re renting or looking to rent to someone, the price will be set as a certain dollar amount, multiplied by the square footage of the space to be rented. For example, a 1,500 square foot office space, rented at $11 per square foot, would be calculated as 1,500 x 11 which would equal $16,500 per year. If you wanted to figure out how much this would be on a monthly basis, you would simply divide by 12 and get a monthly rate of $1,375.

Leasing by Percentage

This is a bit more confusing, but basically, you or your renter would be paying an additional percentage of the total business receipts. For example, if the business renting the office space makes $72,000 and the monthly rent of $1,375 is used as the example above, with an additional 3%, then the total rent would be $2,160 or  $1,375 + ($72,000 x .05) = $2,160

In conclusion, in this article we discussed some of the different types of commercial real estate available and why they are considered commercial. Any property that is above six units and that has a monthly cashflow is considered a commercial property. Whether you are renting out your own spaces to tenants or are about to become a tenant in a commercial office space, you need to know how your rent is or will be calculated before moving forward.