The purpose of this section is to provide an overview for persons unfamiliar with real estate industry jargon to understand the basics of rental cost calculations in typical office leasing situations. Three factors affect rental costs:
the 'rentable area' calculation
the negotiated rent
the budgeted operating costs
Commercial real estate is leased under a broad range of terms and conditions. This explanation is not intended to be exhaustive or all encompassing. We have summarized key elements of the rental cost and the lease structure.
Gross Lease (not common in office leasing - all costs are included)
Modified Gross Lease (a Gross Lease with provision for annual adjustments of some or all operating cost increases)
Net Lease (most common form of lease used in multi-tenant office buildings; Tenant pays negotiated rent + proportionate share of Operating Costs)
The rentable area is the area number upon which rent and operating costs are calculated. The actual area occupied may be grossed-up by 10-18% depending upon two factors. Because the gross-up of the area apportions common areas to the Tenants on a ratio basis, the building design and 'choice of measuring standard' are key to the calculation. Most multi-tenant buildings are surveyed based on either 'new BOMA' [ANSI/BOMA Z65.1-1996] or 'old BOMA' [circa. 1980] measuring standards. BOMA (Building Owners and Managers Association) have been the industry standard setters for office space since 1915. It is important when viewing office space to be clear whether the area being represented is 'actual' or 'rentable' in order to avoid confusion around costs and budgets.
The rent is subject to negotiation. Most leases provide for the rent to be firmly fixed at a rate per annum, per sq. ft. of rentable area.
The Landlord or Property Manager operates the property, pays the costs and keeps the accounting of those costs. Operating Costs are chargeable to Tenants under the terms of a net lease or modified gross lease. The usual practice is to establish a budget for the year, have Tenants pay installments of operating costs along with their rent - and then have the Landlord reconcile the actual to budget figures early in the next year. This process then results, hopefully in most cases, a small invoicing or small refund of the difference. Tenants are cautioned to be mindful of operations quality/value, reputation of Landlord's for 'on-budget' operations and a proactive approach to refurbishment of common areas and aging equipment.
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Office space for lease in Calgary remains a challenge to find, especially on short notice. For large requirements and needs a few months away we are usually able to find a suitable range of qualifying options to help our clients weigh competing options and enter into a competitive negotiation.
On the other hand, if the requirement is small or more immediate - the options are often fewer, the spectrum of choice is often limited and competition can often be fierce. Our objective in representing clients is to negotiate effectively in their best interest without caving to landlord demands. This is not so much science as it is a melding of experience, market knowledge and relationships.
Mark Kolke, Realtor™, is an Associate under contract to MaxWell South Star Realty, licensed by Real Estate Council of Alberta, member of the Alberta Real Estate Association, member of the Canadian Real Estate Association