The rent per square foot is not the price: what commercial space really costs

Short answer: price the whole occupancy, not the rate

Leasing commercial space costs the base rent plus everything the lease adds on top of it: your share of the building's operating expenses, property taxes and insurance, the common areas you pay for but do not occupy, annual rent increases, the cost of building out the space, and a list of smaller charges that start after move-in. Two spaces quoted at the same rate per square foot can end up far apart once those are counted. The only number worth comparing is the total monthly cost over the full term of the lease.

I have worked in commercial real estate since 1999, beginning at The Staubach Company, and I have also signed a lease as a retail business owner. The surprise I see most often is not a high rate. It is an owner who budgeted for the flyer price and then met the real bill in month two. The rest of this guide walks through each layer so you can build the real number yourself.

Rentable versus usable: paying for the lobby

Most office and many retail leases charge rent on rentable square feet, not usable square feet. Usable area is the space inside your suite where your desks, shelves and people go. Rentable area adds your proportional share of the building's common areas: lobbies, corridors, shared restrooms, mechanical rooms. The ratio between the two is called the load factor, and it varies from building to building.

This matters because a suite advertised at a certain size may give you noticeably less room to work than the number suggests, and two buildings with the same rate can charge for very different amounts of space you actually use. When I compare options for a client, I convert every one to cost per usable square foot as well as per rentable square foot. It is the quickest way to see which space is really the better value, and it often reorders the list.

Industrial buildings are usually simpler because a single tenant often occupies the whole structure, but multi-tenant warehouses and flex buildings can still carry shared areas, so ask the question every time.

Operating expenses, CAM and the year-end bill

In a triple-net lease, you pay base rent plus your share of property taxes, building insurance and common area maintenance, usually called CAM. The landlord estimates those costs at the start of the year, bills you monthly, and then reconciles against actual costs after the year closes. If actual costs ran higher, you get a bill for the difference. Full-service and modified gross leases fold some or all of these costs into the rent, but many still pass through increases above a base year or an expense stop.

Property taxes are often one of the largest pieces of that pass-through in North Texas, and they move every year with the appraisal. I cover that in detail in my guide on how Texas property taxes flow into commercial rent. The point here is that the estimate you see in a proposal is a forecast, not a promise.

• Ask for the last two or three years of actual operating expenses, not just the current estimate
• Find out what is included in CAM and what is excluded, such as capital repairs or management fees
• Ask whether controllable expenses are capped and how the cap is calculated
• Confirm how the base year or expense stop is set in a full-service or modified gross lease
• Check whether you have the right to review or audit the landlord's expense records

How annual increases compound over a term

Very few commercial leases keep the same rent for the whole term. Most include a fixed annual increase, either a set amount per square foot or a percentage, and some tie increases to an inflation index. A small yearly bump looks harmless on the first page of a proposal, but it compounds, so the rent in the last year of a long lease can be materially higher than the rent in the first.

When you compare spaces, lay out the rent year by year for the whole term and add it up. A lower starting rate with steeper increases can cost more over five years than a higher starting rate with flatter ones. Ask, too, how rent is set if you exercise a renewal option later. An option priced at market rent protects your right to stay but not your budget.

Build-out: who pays to make the space usable

Unless you are moving into space that already fits your layout, someone has to pay for walls, flooring, lighting, cabling and, for restaurants and some retail, plumbing and ventilation. Landlords commonly offer a tenant improvement allowance, a set amount toward the work, or deliver the space turnkey to an agreed plan. Anything above the allowance is usually yours. Some landlords will fund extra improvements and add the cost to your rent over the term, which is convenient but means you are borrowing at the landlord's rate.

Accessibility is a real cost line in Texas. The Texas Department of Licensing and Regulation states that construction projects with an estimated cost of $50,000 or more must be registered and their documents reviewed by a Registered Accessibility Specialist, and that smaller projects must still comply with the Texas Accessibility Standards. Bids should include that work. Timing matters too: if free rent starts on a fixed date and the build-out runs late, you pay for space you cannot use. A builder's view of that problem is in this guide on finishing a build-out before the free-rent clock runs out.

Charges that appear after move-in

These are the items owners tell me they did not see coming. None of them is unusual. They are simply not on the flyer, so they need to be on your list before you sign.

As a retail owner I learned that the small monthly items add up faster than the big one-time costs, because they repeat for every month of the term. Ask the landlord or the current tenant what these actually run, and ask in writing which of them the lease makes your responsibility. Retail tenants in particular should also ask about marketing fund contributions, percentage rent clauses and any limits on operating hours, since each one affects what the space really costs to run.

• Utilities, and whether they are separately metered or allocated by square footage
• After-hours heating and cooling in office buildings, often billed by the hour
• Parking, especially reserved or covered spaces
• Janitorial service, trash and pest control if not included in operating expenses
• Signage on the building or a monument sign, plus permits and fabrication
• Insurance the lease requires you to carry, and the limits it sets
• Security deposit or letter of credit, which ties up cash for the whole term
• Moving, cabling, furniture and the certificate of occupancy a city may require for a new tenant

Concessions that lower the real number

The other side of the ledger is what the landlord gives back. Free rent months, a generous improvement allowance, a moving allowance, a cap on operating expense growth, or a lower security deposit can all reduce what you pay over the term. Concessions vary with how much vacancy a landlord has and how long a space has been sitting empty, which is why the same building can offer very different terms a year apart.

To compare offers fairly, I calculate an effective rent: total rent and pass-throughs over the term, minus the value of concessions, divided over the months and the square footage. That single figure lets you put a space with free rent and a high rate next to a space with no concessions and a low rate and see which one actually costs less. It also shows you where there is room to negotiate.

Building a side-by-side comparison you can trust

Whether you work with a broker or do this yourself, the comparison should follow the same steps. If you are weighing whether to handle the negotiation on your own, I wrote a separate guide on what you can and cannot do without a tenant representative.

Keep the spreadsheet simple enough that your partner or banker can read it in five minutes. The goal is a fair, apples-to-apples view, not a model so complicated that nobody trusts it.

• Measure each option in rentable and usable square feet
• Lay out base rent year by year for the full term
• Add estimated operating expenses, using actual history where you can get it
• Add build-out costs above the allowance, moving and setup
• Subtract the value of free rent and other concessions
• Divide into a monthly figure and a cost per usable square foot
• Note the terms that do not show up in the math, such as renewal options and expansion rights

Before you sign a letter of intent

The letter of intent is where these numbers get set. Once it is signed, the lease usually follows its business terms, and reopening them is harder. That is the moment to make sure the rate, the measurement basis, the expense structure, the escalations, the allowance and the concessions are all written down and all understood.

If you already have a space and your lease is coming up, the same exercise applies to the landlord's renewal proposal. My earlier guide on deciding whether to renew, move or buy covers that decision. When I work with a business owner anywhere in Dallas–Fort Worth, from my office in McKinney, the first thing I do is build this comparison so every option is measured the same way and nothing on the bill is a surprise later.

Questions people ask me