You decided to invest in real estate, which means you already know about its incredible earning potential. As commercial real estate brokers, we couldn’t agree more. However, now comes the next step in the process. When leasing, you must determine the rent amount to charge for your commercial real estate property.

If this is your first time leasing commercial real estate, this part might be a little stressful. However, there is no need to worry. We have prepared a short guide to help you know how to set the perfect rent prices.

The Key Factors That Affect Rent Prices

Before hopping on to calculating your rent price, you should know about the factors that affect them. Below is a list of all the aspects that play an important role in determining prices:

1. Property category

The property category refers to which kind of property you are leasing. Below are the kinds of categories you can buy and subsequently lease:

  • Multifamily units
  • Office space
  • Retail property
  • Warehouses
  • Industrial properties
  • Hospitality

Out of the kinds of commercial real estate mentioned above, multifamily tends to be the least expensive on average, keeping all other factors constant.

2. Property zone

Property zones refer to the neighborhood the property is located in. The more posh, commercial, and expensive the locality, the higher the rates you can charge as rent.

3. The size of the property

The total size of your property also determines the amount of rent you can ideally charge. You need to consider two main components of property size.

  • Rentable square feet
  • Usable square feet

The bigger properties with more usable space have higher rents.

4. Property type

Commercial real estate properties are divided into classes based on their neighborhood, facilities, and their surrounding areas. Class A properties carry high rents due to bet in class locations, facilities, and neighborhoods.

  • Class A ($$$)
  • Class B ($$)
  • Class C ($)

5. Maintenance

The better maintained your commercial real estate property is, the higher the rent you can charge on it. So, make sure you regularly get the property inspected and repaired.

6. Lease type

The type of lease you opt for also determines the rent costs. There are three main lease types:

  • Triple Net
  • Double Net
  • Single Net

While triple net leases are beneficial for the investor, they may carry a lesser  charge for base rent. However, while the others offer more base rent, you also get to transfer all maintenance, tax, and insurance responsibilities onto your tenant.

How to Set the Right Rent Amount for Your Commercial Real Estate

To set the right rent amount for your commercial real estate, get a commercial real estate broker on board. They are aware of the market movements and competitive prices and will provide you with the necessary guidance regarding the matter.

Your rent setting will involve the following steps:

  • Determining your rent per square foot of the rental property.
  • Working with the commercial real estate broker to determine the base rent based on market, zone, and competitive rental prices.
  • Take into account your additional charges. For example, businesses in malls are expected to give the base rate and a portion of gross sales.

Step 1: Once you have determined the base rent per square foot, multiply it by total square feet of rental space.

Step 2: Multiply the above number by 30.

Step 3: Add margin for the zone, property type, market trends to the number.

After making all your calculations, you will have the monthly rent you can charge.

You can also multiply the last number by 12 to see how you will earn annually.

Final Thoughts

Determining the rent amount to charge for your commercial real estate property is an objective process that sometimes needs expert advice from a professional. If you are confused about what to charge, contact the CHRE team. We have been in the commercial real estate business for years and can help you make the right choice.