What to consider when evaluating the full cost of a space
When looking at commercial space, the monthly rent is usually the first number people focus on.
But in most cases, it’s only one part of the overall cost.
Depending on the type of property and lease structure, there can be several additional expenses that factor into what a space actually costs to occupy.
This article outlines some of the common components that are typically considered when evaluating a commercial lease.
Base Rent vs. Total Occupancy Cost
In many listings, you’ll see a “base rent” quoted, often on a per square foot basis.
This reflects the cost of occupying the space itself, but it may not include other expenses associated with the property.
The total occupancy cost is usually made up of:
- Base rent
- Additional rent (often referred to as operating costs)
- Utilities
- Other building-specific expenses
Understanding how these pieces come together can help provide a clearer picture of the full cost.
Additional Rent (Operating Costs / TMI)
In many commercial leases, tenants typically contribute to the operating costs of the property.
This is often referred to as:
- Additional rent
- TMI (Taxes, Maintenance, and Insurance)
These costs can include:
- Property taxes
- Building maintenance and repairs
- Snow removal and landscaping
- Property management
- Building insurance
These amounts are typically calculated on a per square foot basis and can vary depending on the building and its operations.
Utilities and Services
Utilities may or may not be included in the lease, depending on the property.
These can include:
- Electricity
- Heating and cooling
- Water
- Internet and telecommunications
In some cases, utilities are separately metered. In others, they may be shared or estimated.
Lease Structure Matters
The way a lease is structured can have a significant impact on overall cost.
Common structures include:
- Net leases (where tenants pay a portion of operating costs)
- Gross leases (where some costs are included in rent)
Each structure allocates costs differently, which is why two spaces with similar base rents can have different total occupancy costs.
Upfront and One-Time Costs
In addition to ongoing expenses, there may also be upfront costs to consider.
These can include:
- Leasehold improvements (customizing the space)
- Deposits
- Legal or administrative costs
- Moving expenses
These aren’t typically reflected in the monthly rent but can factor into the overall decision.
Changes Over Time
Some costs may change throughout the lease term.
For example:
- Operating costs can fluctuate year to year
- Property taxes may be reassessed on an annual basis
- Utility costs can vary
Understanding how these costs are handled within the lease can help avoid surprises over time.
Bringing It Together
Looking beyond the base rent is an important part of evaluating any commercial space.
While listings often highlight a single number, the total cost of occupancy is usually made up of several components that work together.
Taking the time to understand how these costs are structured can make it easier to compare options and evaluate what fits within your overall plan.
Exploring Space Options?
If you’re reviewing opportunities, looking at both the base rent and the broader cost structure can help provide a clearer view of how a space may function for your business.
Our team works with businesses across Eastern Ontario to help frame those considerations, so you can move forward with a better understanding of what to expect.
