How commercial rent is calculated
Commercial rent is usually quoted per square foot per year. In a gross lease that rate covers everything. In a triple net (NNN) lease the tenant also pays a share of property tax, insurance and common area maintenance.
The formula
Monthly rent = square feet × (base rate + NNN charges) ÷ 12
Worked example
2,000 square feet at $24 per square foot is $48,000 a year, or $4,000 a month. With $6 of NNN charges it is $5,000 a month.
How to use this calculator
Enter the rentable area, the base rent and the NNN charges, then the lease term and the yearly increase. For a gross lease, leave the NNN charges at zero. The calculator shows the monthly and yearly rent for year one, the base rent and NNN charges per year, and the total over the lease.
What the result means
The result is your estimated occupancy cost under the lease, before your own utilities, fit-out and business costs. In the example, $5,000 a month is $60,000 a year. Of that, $48,000 is base rent and $12,000 is the pass-through of tax, insurance and maintenance. Landlords usually bill NNN charges as an estimate, so treat that part as the less certain half of the number.
More examples
These use the same $24 base rate and $6 of NNN charges, a total of $30 per square foot per year.
| Space | Monthly rent | Yearly rent |
|---|---|---|
| 1,000 sq ft | $2,500 | $30,000 |
| 2,000 sq ft | $5,000 | $60,000 |
| 5,000 sq ft | $12,500 | $150,000 |
On the 5,000 square foot space, the $6 of NNN charges alone come to $30,000 a year.
Gross quote against an NNN quote
Two quotes for 2,000 square feet can look very different. A gross lease at $31 is $5,167 a month. An NNN lease at $24 plus $6 of charges is $5,000 a month. The $24 quote is not $7 cheaper. It is $1 cheaper once the charges are added.
Usable against rentable area
Suppose a suite has 1,800 usable square feet and the building adds 15% for common areas. The rentable area is 1,800 × 1.15 = 2,070 square feet. At $30 a foot, that is $62,100 a year, or $5,175 a month.
What changes the result
- Square footage. Rent rises in step with the rentable area.
- Base rate. Each $1 per square foot adds $2,000 a year on a 2,000 square foot space.
- NNN charges. These follow the building’s actual tax, insurance and maintenance bills, so they can go up or down from year to year.
- Yearly increases. If the lease raises the base rate by, for example, 3% a year, $24 becomes $24.72 in year two. With $6 of charges, the example rent rises from $5,000 to $5,120 a month.
Common mistakes
- Reading a yearly rate as a monthly one. $24 per square foot means per year unless the quote says otherwise.
- Comparing a gross rate with an NNN base rate without adding the charges.
- Measuring the usable space when rent is charged on rentable space.
- Budgeting only for year one when the lease has scheduled increases.
Related calculators
Measure the space with the square footage calculator. If a commercial lease includes free months, the net effective rent calculator spreads them across the term. Owners can turn rent into income and value with the NOI calculator and the cap rate calculator.
Frequently asked questions
What does NNN stand for?
Net, net, net: property tax, insurance and maintenance.
What is CAM?
Common area maintenance: the cost of shared spaces such as parking, lobbies and landscaping.
Usable or rentable square feet?
Rent is normally charged on rentable square feet, which includes a share of common areas.
Is commercial rent quoted per month or per year?
Usually per square foot per year. Divide the yearly total by 12 for the monthly rent. Some markets quote monthly, so confirm with the landlord or broker.
Can NNN charges change during the lease?
Yes. They are based on the building’s real costs, which change. Ask for the charges from recent years and read how the lease handles increases.
Is an NNN lease cheaper than a gross lease?
Not necessarily. The base rate is lower, but you pay the charges on top. Add both together before you compare.