How Industrial Rental Rates are Calculated

The cost of renting a warehouse or industrial space is one of the most expensive items to factor into a business operating budget. Commercial real estate rental prices can vary widely depending on location and region, which can make budgeting a bit tricky. This guide can help business owners understand how landlords determine rents for industrial spaces and warehouses.

While locations and regions can impact rents, landlords typically base warehouse costs on the following:

1. Base rent

This is what you will pay per square foot per year, although some landlords may quote it per month. The larger your industrial space, the higher your base rent.

2. Property taxes and insurance

These are based on the entire property, so your fees as a renter will be proportionate to the size of the warehouse or industrial space you will be renting. While there are always exceptions, taxes and insurance will likely rise year after year, so it is important for business owners to figure those increases into long-term budgets.

3. Common area maintenance (CAM)

These are the costs for maintaining common areas such as elevators, hallways, parking lots, security, and other areas that all occupants have access to. These fees depend on the type of space you are renting, so it is important for business owners to understand how the landlord defines common areas.

Types of Leases

Next, it's important to understand the types of leases that will be available. There are two ways in which industrial rent is often quoted by landlords: industrial gross (IG) and triple net (NNN).

Gross Lease

Industrial gross (IG) is a comprehensive rate that includes base rent, and often can include property taxes, insurance, and CAM, all of which are reflected in the cost per square foot per year rental quote. Renters know exactly where they stand when the IG rent is quoted.

Triple Net Lease

On the other hand, triple net (NNN) lease covers taxes, insurance, and maintenance-the three "nets"-in addition to rent. Tenants will also have to factor in any additional fees, such as utilities or other operating expenses.

Triple net leases are more often quoted by warehouse landlords. That is why it is important for a business owner to determine the true cost of rent for industrial space.

As rent for industrial or warehouse space comprise a large portion of a business operating budget, it is important for owners to understand exactly what they are getting-and what they are not getting-for their rent.

This article was updated on 7/15/2024