Understanding Retail Space Lease Rates and How They are Calculated

When leasing retail space it can be quite confusing trying to calculate how much your monthly rent will be. Some Landlord’s quote retail space lease rates differently which makes it hard to compare apples to apples. Below are a few guidelines & terminology that will help you calculate your monthly rent amount when leasing retail space.

When renting retail space a lot of landlords typically quote a base lease rate and NNN (triple net, aka operating expenses).  In some retail centers they also may charge percentage rent. Base rate and NNN are usually quoted as SF / YR (e.g. $20 + $7NNN).

Base Lease Rate (minimum rent) – Landlords determine base lease rates by a number of factors such as market conditions, accounting preferences, available space, tenants credit and financials, etc. Base lease rates can be negotiated however the final number depends on your financial credit, lease term length, tenant improvement (TI) allowance, and additional concessions you may request such as free rent. Retail space lease rates in Austin, Tx typically range from $20 to $35 SF.

NNN (triple nets) – Are the operating expenses that tenants also pay in retail spaces.  NNN typically include taxes, insurance, & maintenance. Some landlords also refer to this as CAM (common area maintenance). Operating expenses are variable and may increase or decrease depending on market conditions.  Operating expenses are equally shared among all the tenants and they are not typically negotiable unless you are a large national franchise with strong credit and financials.  In Austin, Tx NNN costs for retail space range from $5-$10 SF.

Percentage Rent – In addition to base rate and NNN a landlord may charge percentage rent (e.g. 5% to 7% of gross sales) above a natural break point. This number is based off of your yearly base rental amount. For example if you lease 1,000 sf, your yearly rent is $27,000 and you negotiated percentage rent of 6%, your natural break point would be $450,000. So for every dollar in gross sales above $450,000 you would pay 6%. Percentage rent clauses are negotiable items however that depends many factors.

How Retail Lease Rates are Calculated – As mentioned above retail lease rates are typically quoted on an annual basis. For example if a landlord quotes you $20 NNN and the NNN equal $7, your total yearly rate for that year would be $27 SF. So if you were leasing 1,000 sf your monthly rent would be $2,250 (1,000 x $27 / 12). Above we have explained the basics of Austin retail lease rates and how they are calculated. Depending on your credit and situation, the market you are in, and landlord/investor preferences some of the points may differ.

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