How Commercial Real Estate Rents are Quoted

Are you somewhat confused by all the terms that commercial real estate agents throw around like nothing? Well don't worry, I can assure you that you are in good company.

Lets get a few of the basics out of the way and then we can move on to some of the specifics. One of the first things you have to understand is that there are several components to the overall rental rate that you ultimately end up paying. There is the rent that you pay the Landlord for the use of their space, but also as a commercial Tenant you will also pay for the following items; the maintenance of the overall building, the property taxes, building insurance and management of the property. (I know, I know, it doesn't seem fair to be paying for the management and maintenance of someone else's property, but that's the real world, so get used to it!)

There are basically two types of rents that you will be quoted when searching for commercial space. They are Gross rents and Net rents. They are two separate ends of the spectrum of what is included in the rent.

Gross rent is an all in rent. A true Gross rent includes all of the above mentioned expenses (Property taxes, insurance, maintenance, management, utilities etc. etc.) and any other expense that might be particular to a specific property.

Net rent is a type of rent that includes nothing extra. Net rent is simply the amount that you are paying the Landlord for the right to use their space for a specified period of time.

In a single tenanted property the Tenant simply pays for all additional expenses themselves.

In multi tenanted properties such as office buildings or multi tenant retail malls the Net rent is commonly accompanied by Additional rent (Also called CAM/Tax which stands for Common Area and Maintenance plus Property Taxes). The Additional rent covers the expenses mentioned above.

The Additional rent is usually an estimated amount based on the previous years operating expenses. The total expenses for the property are added up and then divided by the rentable square footage of the building. The expenses are then allocated to each tenant proportionally to the amount of space that they have of the building. So if a building has 10,000 Sq Ft of rentable space, and a tenant has 1,000 Sq Ft retail store, then they would pay 10% of the total expenses. The Additional rent is quoted on a per Sq Ft basis as well.

In different parts of the country the rents may be quoted differently. In Winnipeg the rents quoted are usually quoted as a price per square foot per year. In other parts of the country they may be quoted as price per square foot per month. When in doubt, ask.

If you have any questions or if you would like to discuss this further, please do not hesitate to call me at 204-667-SOLD (7653).