On a daily basis I receive calls from people interested in leasing retail space in some of the shopping centers that I lease and when I tell them the price, most people do not flinch...at first. The dialogue is usually starts off with someone asking me the price after seeing a sign. They almost always ask, "how much is the space" and my answer is always something like "$25 per square foot(psf)". My response is always followed up with, "oh ok, so its around $2,500 a month. That's not too bad".
Well, my colleagues...this is where retail education is lacking. When one rents a house, apartment, mansion or even a ballroom, 9 times out of 10, the price to use that space will be quoted in the monthly value. So, if you rent an apartment in Brooklyn, you will have to pay $2,000 a month to live there. And if you earn $5,000 a month, you figure that this apartment is within your budget.
But...you see, in the world of construction, commercial real estate, and even architecture...this are priced at a dollars per square foot. The reason is because the space is measured on a square foot basis as well. Every piece of real estate has a value per square foot, square meter, hectare, etc. And there is a leasing value per square foot and the sales value per square foot, but for our purposes, we will stick to the leasable value per square foot. Let's do an example for educational purposes:
I see a sign that says retail space for lease - 2,000 square feet (sf) available. Great! I make the call and speak with Mr. Broker. I ask her how much does the space cost and she tells me $20 per square foot. Okay, for someone new to leasing a space, that does not really mean much...at least not yet, but here is what you do:
Take the size (2,000 SF) and Multiply that by the dollar amount provided ($20):
2,000 SF x $20 = $40,000
This $40,000 equalts the amount you would have to pay annually to lease this retail space. So at this point if you need to understand things in monthly payments, the space will cost you $3,333.00 a month (without operating expenses which is a different blog for a different day).
The WHY
Now, you might ask...well, why doesn't the landlord just say everything in monthly payments...thats what most people are familiar with. Excellent question! In a shopping center, there can be a range in the number of tenants and spaces available for lease. Well, it would be very difficult to set a standard when there is a strong likely hood that each space is different. A 4,000 SF space is not going to have the same monthly rate as a 2,000 SF space, but they are very likely to have the same cost per a square foot. So, the price per square foot is a gauge for the shopping center as a whole.
Keep in mind, this is also the best way to get a feel for your market (the area where you live or plan to start your business). Prices per square foot in the Georgetown area of Washington D.C. are running between $80 SF and $110 SF while a similar space in the China Town area of D.C. will cost you about $55 SF. Any reason for the difference? YES!!! Location, location, location mixed with a good dose of supply and demand.
So, I hope this helps you in finding your next space and when you hear someone quote you $25 a square foot, counter them with an offer in their language...the square foot language of commercial real estate.
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