How Is The Rent For A Commercial Property Calculated?

Rent For A Commercial Property Calculated: Methods for calculating rent for commercial property may differ slightly from those used for residential property. Here’s how to accurately determine the commercial property rent and the current variables that may impact rentals. Here is a useful resource from navimumbaihousescom. for property owners wishing to rent out their properties as well as potential renters.

Rent is the fee the renter pays the landlord to use the facility. However, one of the less well-known procedures has always been the rent calculation approach. The form of lease agreement and any additional fees are typically agreed upon by both property owners and renters. In most instances, it gives clarity. The most frequent computation techniques in other circumstances are as follows:


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How much does rent cost per month?

Here are several various rent calculation techniques:


Actual square feet

One of the first techniques for calculating rent for commercial premises is this one. Depending on the type of company and other circumstances, renters and property owners frequently come to agreements about the base rental rates. The ultimate due rent is then calculated as well. It depends on the space that the business tenant uses or the useable square feet.


Rent For A Commercial Property Calculated: Yearly rent

Rent is multiplied by each unit of available and useable square footage in the computation. Assume, for instance, that the price per square foot is Rs 2,000 and the total square footage is 2,000 sq ft; in this case, the gross rental amount is Rs 40 lakhs. The yearly rent model is frequently supported by larger companies and corporate tenants since they like making one-time payments while negotiating full-service property leases.


Rent For A Commercial Property Calculated- Regular rent

Simply divide the yearly sum by 12 to determine the monthly rent. In the prior scenario, the monthly rent would be around Rs 3 lakhs if the annual rent is Rs 40 lakhs. Smaller firms, especially newer ones that can’t pay right away and are still establishing their revenues and financial flows, frequently find it to be more beneficial.


Rental percentage

Another sort of contract is a percentage rental, under which the owner of the commercial property receives a share of the tenant’s revenues. In India, these transactions are unusual. Shares of percentage rents are on the greater side if the property site benefits from great connectivity, massive foot traffic, and surging revenues.

In addition to obtaining an additional revenue as a reward for letting their tenants access excellent real estate, owners also receive a base rental value for the property. In this arrangement, property owners frequently have rental plans that include basic rentals beyond a certain threshold and profit percentages.

Assume that a property’s monthly commercial rent is Rs 30,000 and that the owner has committed to a 10% profit margin on any earnings that surpass Rs 3 lakh. Therefore, the ultimate sum would be Rs 30,000 + (Rs 5 lakh – Rs 3 lakh) x 10% if the company made Rs 5 lakh in gross profits. The owner will receive Rs 30,000 + Rs 20,000 = Rs 55,000 as a result. There may be provisions in some leases that require tenants to pay a set proportion of profits, regardless of their gross profit margins.


GST on business rent

If the yearly rent exceeds Rs 20 lakh, GST is due on the rent received from commercial real estate. GST of about 18% must be paid to the landlord. Originally established at Rs. 10 lakh, this ceiling was later raised to Rs. 20 lakh to provide assistance to landlords. If the yearly rent for a business property is less than Rs 20 lakh, GST is not applied.


Rent For A Commercial Property Calculated: Determinants of commercial rent

Rent rates are affected by a number of variables, including location, rentable and useable space, contract or lease type, market pricing and trends, and the way the property is furnished and equipped.

Everyone uses the following basic formula to determine business rent:

Rent equals (Usable Square Feet x Usable Square Feet Rate Per Month) + (Common area x the rates per month for this type of area).

Assume the useable space is 100 square feet, and the shared space is 50 square feet. If the monthly rent for the useable area is Rs 150 and the monthly fee for the shared area is Rs 50 per sq ft. As a result, the monthly commercial rent will be as follows:

(100 x 150) + (50 x 50) = Rs 17,500 per month.

Location has a significant impact on rental rates and capital growth. Naturally, areas with established tenants will have higher rents in areas with vacancy rates below 5%.

In comparison to comparable properties in the same neighbourhood, buildings and properties with greater facilities, fit-outs, LEED and other ratings/certifications, better elevators/lobbies, higher ceiling heights, spectacular vistas, and better construction quality would naturally have higher rentals.

In certain micro markets, demand and supply equations also affect rental prices. Each region has its own finished and leased stock in addition to forthcoming supplies. The other component of the system is annual demand. Rental prices decline if rental supply exceeds demand. If supply cannot keep up with demand, the opposite occurs.


Determinants of commercial rent

Long-term influences on rents and property prices include market trends. Infrastructure improvements, the availability of public transit and social facilities, and even tenant quality (blue-chip businesses, MNCs, banks, leading corporations).

Office fit-outs and other commercial spaces are frequently offered in bare shell forms. Where tenants are responsible for everything from flooring to conference rooms, wiring, cubicles, and more. While some renters choose to complete their own fit-outs. Others prefer to work with developers or owners and pay an additional rental fee. These cost Rs 800-1,000 per square foot. Developers or owners may add an additional Rs 25–30 per square foot each month to pay these expenses.

Rental costs are also based on the lease structure. Commercial leases often consist of 5+5+5 or even 3+3+3 agreements. Every three or five years, there are escalation terms for rent.

These are some considerations you should make when figuring out how much to charge for any business property.




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Disclaimer: The views of this expressed above are for informational purposes only based on the industry reports & related news stories. does not guarantee the accuracy of this article, completeness, or reliability of the information & shall not be held responsible for any action taken based on the published information.
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