Rent Per Square Foot Explained

Commercial rent gets quoted in dollars per square foot per year, which can throw off anyone used to monthly residential rent figures. Once the basic math is clear, comparing properties becomes far easier, and conversations with brokers and landlords across Macomb County make a lot more sense.

The formula multiplies quoted annual rate by square footage and divides by 12 for the monthly payment. A 5,000 square foot industrial suite quoted at $9 per foot works out to 5,000 times 9, or $45,000 annually, divided by 12, for $3,750 per month in base rent. That is the starting figure. What gets added depends on the lease structure.

Three lease types dominate the Macomb County commercial market, each calculating total rent differently. Gross leases bundle most expenses into one rate. The quoted number is close to total occupancy cost. Modified gross leases split expenses between landlord and tenant, often using a base year approach where the tenant pays increases above the first year’s expense level. Triple net leases quote a lower base rent and add tenant share of property taxes, building insurance, and common area maintenance separately. A $8 NNN rate with $4 per foot of NNN charges totals $12 per foot all in.

Comparing properties across different lease structures without normalizing produces wrong conclusions. A Van Dyke industrial building at $11 modified gross looks different from a Sterling Heights industrial building at $7 NNN with $5 of NNN charges. Both round to roughly $12 per foot all in, but one looks much cheaper on the asking sheet. The right comparison is total occupancy cost per foot, not headline rate.

Escalations compound rent over the lease term. Most commercial leases include annual increases of 2.5 to 3 percent, sometimes tied to CPI with caps and floors. A $9 starting rate with 3 percent escalations becomes about $12.07 by year 10. Tenants signing longer leases should model total rent across the full term, because the year one number understates true commitment significantly. Over a 10 year lease on 5,000 square feet at $9 starting with 3 percent escalations, total rent paid is roughly $515,000 versus $450,000 if rent stayed flat.

Free rent and tenant improvement allowances reduce effective rent. Three months of free rent on a five year lease at $12 per foot saves the tenant six months of expense across the lease term, which works out to an effective rent reduction of about $0.50 per foot averaged. A $20 per foot TI allowance on a 5,000 foot suite is $100,000 of landlord investment that offsets buildout costs the tenant would otherwise fund. Both move real money even when they do not appear in the headline rent.

Useable versus rentable square footage matters in multi tenant buildings. Rentable footage includes proportional share of common areas like lobbies, hallways, and restrooms. Useable footage is just the tenant’s exclusive space. Multi tenant office buildings often charge rent on rentable footage that is 12 to 18 percent larger than useable. Tenants who care about cost per useable foot need to make that calculation explicitly during evaluation.

Michigan’s property tax uncapping at sale affects NNN tenants directly. When a building sells, taxable value typically uncaps to current state equalized value, often increasing property taxes meaningfully. Under NNN leases, that increase flows through to tenants. Tenants signing NNN leases shortly before or after a building sale should verify whether quoted NNN reflects the new tax basis or the old one.

TDG Commercial, known as top commercial real estate agent in Macomb County, runs full occupancy cost comparisons for tenants evaluating space across the region. Understanding rent per square foot properly is the foundation for any rational leasing decision.