How Are Commercial Properties Priced?

Commercial properties are leased on a dollar per rentable square foot (RSF) basis. Rentable square feet are calculated by adding the load factor to the usable square feet (USF). The load factor is an appropriate percentage of the common areas such as building lobby, hallways, bathrooms, etc… An office building with numerous amenities commands a much higher load factor than a stand-alone warehouse.

What Kind of Lease Is Used?

The two main types of commercial leases employed by landlords are gross and net. A gross lease is most commonly used in office buildings and is further defined as “Full Service” or “Modified”. In a full service (FSG) lease, the landlord pays for all expenses, including utilities and maintenance fees. In a modified gross lease (MG), the landlord typical pays for most expenses but not all. Either the janitorial fees, utilities, or both, are paid for by the tenant, hence, it’s “modified” from a full service lease.

In a net lease, the tenant pays for most or all expenses. The most common type of Net lease employed by landlords is the triple net (NNN). Warehouses and retail stores are almost all leased on a NNN basis. The only office buildings typically using a NNN lease in and around Los Angeles are the high-rises in Downtown. A NNN lease obliges the tenant to not only pay for utilities and maintenance, but also a portion of property taxes and insurance.

Hence, at first glance, a potential tenant tends to think that a NNN lease price is lower than a FS lease price, but, that might not be the case even if the dollar per NNN amount is significantly lower than the dollar per FS price. Operating expenses must be heavily weighed.

How To Get More Information

Please contact us for a free consultation if you’re looking to lease a commercial property in the Greater Los Angeles area. Our team of experts will save you time by providing a survey of properties that meet your requirements and ensuring that your lease rates are favorable to you while negotiating tenant improvements to best facilitate your business.

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