Understanding Rental Rates

Understanding Rental Rates

Commercial and retail leases can be calculated using a variety rental pricing methods based on the type of business the tenant is operating. In some cases the state of the economy is a factor to keep spaced occupied when revenues are slow and the ability to pay is based on business revenues.

Rental rates are affected by many external factors and the details of agreement such as the lease term, the size of the property, access to storage, high visibility, front office views and panoramic vistas, proximity to certain locations, and the current market/economy.

Increases in rental rates can be influenced by market conditions for retail tenants, who could be required to pay a percentage rent that includes a percentage of gross sales. Under normal conditions, the rental rate is the amount of rent you pay per square quoted on a monthly basis, keep in mind that there are markets such quoted on an annual basis. Inner-city office leasing is generally quoted as an annual rate, while industrial and retail is typically stated as monthly rates.

Keep in mind that many real estate brokers will use terminology to refer to annual square footage rates and potential tenants will commonly define rates on a monthly basis. The differences are based on how each looks at expenses. Tenants may plan their expenses on a monthly basis and leasing agents create agreements based on annual terms.

There are specific attributes associated with each square footage rate such as; Full Service Gross, Industrial Gross (or Single Net), Double Net and Triple Net (or Absolute Net); all of these except the Full Service Gross rent may have Common Area Maintenance (CAM) charges added on.

These traits determine who pays the utilities, janitorial and other building services (elevators, common hall lights, etc.) and are key factors in determining the true asking rate. Rent can include utilities, such as phone, electricity, and water.

Will you as the tenant be responsible for paying any of the landlord’s maintenance expenses, and property taxes, or insurance costs? How these expenses are calculated has a significant impact on the rental rate. Check to determine whether there is a required deposit and if a letter of credit instead of cash. Included in the description of the space you are renting should be how much square footage is necessary for your type of business, available parking, other services and features.

A detailed list of any improvements the landlord plans to make to the space before you move in. or the cost to you for renovations after you occupy the space. The landlord or leasing agent can include statements describing amenities with regard to foot traffic, utility costs, security and restrictions on renting to competitors. It is also important to ensure the property is in compliance with Americans with Disabilities Act requirements.

Be sure the space is zoned appropriately for your type of business and under what conditions you will be able to sublease or assign the lease to someone else. Last but not least, negotiate how either you or the landlord can terminate the lease and the consequences.

Once a lease is signed, the rental rate is fixed for the lease term. Because there are a number of factors that comprise rents and several customary ways to quote rents, it can be difficult to understand what people mean when they are discussing leasing rates.