Calculating Rent Per Square Foot

Did you know that in different parts of the US, they calculate rent per square foot differently then in New York?  In New York, and especially on Long Island, rent per square foot (labeled PSF or /SF) is calculated on an annual basis.  This is especially helpful so that you can compare two or more spaces, to see what kind of value you are getting for the amount of space you are using.  Let’s take a look at a few examples.

To find out the rent per square foot, take the yearly rent and divide by the square footage of the space.  For example: annual rent is $50,000 to rent a 2,000 SF space.  To find the rent PSF divide $50,000 by 2,000 = $25/SF.

What if you want to know the monthly rent for a 1,500 SF space that is listed at $15/SF.  Multiply 1,500 by 15 to find the annual rent of $22,500; then divide by 12 to find the monthly rent of $1,875.

Now that you know the basics, I’ll show where this really comes in handy.  Let’s say you are searching for a space for your online custom blanket business.  You need between 1,000 SF and 1,200 SF.  You find two spaces that fall in that range, 221 Main St is 1,050 SF and listed at $11 PSF, and 826 Broadway is 1,125 SF and listed at $1,500 per month.  In order to compare the two, you need to have a common price measurement and since the spaces are two different sizes, we will use the Price Per Square Foot calculation to determine which is a better deal.  

• 221 Main St shows the price as $11 PSF.  Great, we don’t have to do any additional math here.
• 826 Broadway shows the price as $1,500 per month.  Great, we get to try out our new math skills.  First find the annual rent by multiplying the monthly rent of $1,500 by 12.  $18,000 is the annual rent.  Now divide the annual rent of $18,000 by the square footage of the space 1,125 SF.  $16 PSF or $16 / SF is the result.
• Now we can clearly see that 221 Main Street with an $11 PSF rental rate is a better deal than 826 Broadway with a $16 PSF rental rate.

If you have any questions about this article or commercial real estate in general email [email protected] or let me know in the comments below.  Don’t forget to subscribe to our email blasts!

Next week we’ll talk about Lease Commencement Costs.