When it comes to commercial real estate (CRE), whether you are a buyer, seller, developer, or working in any related field, the big questions are always “What is it worth?” and “What does it cost?” However, despite the fact that everyone wants to know those answers, determining exact figures and values can be tricky.
There are all sorts of data points and factors that contribute to the market value of a property. On top of identifying which factors to look at, one thing that can cause trouble is the lack of up-to-date and accurate commercial real estate data. That’s what we are trying to fix here at Canyon Data. So, we are starting with this blog in an effort to make the world of commercial real estate more transparent. In this article, we look at the factors that contribute to the value of a commercial property and ultimately what goes into the price per square foot.
How to Calculate Price Per Square Foot for a Rental
If you are looking to figure out the price per square foot of a space you intend to rent, the simplest thing to do is divide the overall price by the square footage. For example, if you want to rent a space that is 1,500 square feet, and the monthly rent is 3,000 dollars, the price per square foot is 2 dollars per month, or 24 dollars per year.
However, if you are on the other side and want to determine what you should be charging as a price per square foot, the process is not so simple. To determine a fair rent value for your property, you need to look at several things, including:
- The average commercial rent per square foot by city or neighborhood (so you can get information for your specific area)
- The average industrial rents per square foot by state or city (again so you have information pertinent to your location)
- Commercial real estate price trends for rental properties similar to yours.
- Location in a city
- Quality of the of the property
- Class (A, B, or C)
Once you combine these different data points, you should be able to generate a good range for what a fair rent price should be.
How to Calculate the Worth Per Square Foot of a Commercial Property
Whether you are looking to sell or buy a commercial property, or just evaluating your asset, there are several reasons you might want to know the worth per square foot. But, similar to the process for determining rental prices, the formula for calculating property value has multiple variables. Let’s take a look at some of them.
Historical Commercial Property Prices
One factor you will want to consider is the historical value of the property. Historical value or past transactions can help you understand what the property was worth at different periods of time. It can also inform you on whether commercial real estate prices are dropping, rising, or holding relatively steady over a given period.
Another good idea is looking at commercial property value history in and around your location. Looking at the trends of your area helps you gain a true sense of what your property is worth and whether it is increasing in value over time or decreasing.
Average Commercial Price Per Square Foot by Zip Code
You will want to understand what the average price per square foot is in your city, neighborhood, and state, ie your zip code. This data can help you understand what a fair value of your property is currently. Similarly, if you are looking at investing in commercial property, you will want to know whether the current or potential future value changes from block to block or area to area.
For example, let’s say you are considering buying retail space for your clothing store. You probably want to know how much that space will cost in neighborhood A versus neighborhood B. You might also want to understand what others on that street are paying to make sure you get a good value. So, where do you get that kind of information? A Canyon Data subscription can provide you with all of that, and more.
Commercial Real Estate Price Trends in General
Another important factor to consider are the overall trends in commercial real estate, which you can find through NAIOP, Dodge Reports, and Commercial brokerages. Fluctuating prices, surging demand, and supply shortages are some of many factors that will contribute to the market value of a commercial property.
The thing about market value is that it is always changing, and you will always have to sort through lots of information that can impact that value. Aside from the data we mentioned above, other considerations include:
- Cost of materials
- Trends in retail and office spaces
- Changes in tenant empowerment
- CRE vacancies
- Increasing investor interest
We could go on about all the things you need to consider to get a relatively accurate sense of your property’s value, but it’s already clear the biggest thing you need is data. Not just any data, but current, accurate, transparent data. That’s where we come in.
Canyon Data…Filling the Void in CRE
At Canyon Data, we believe everyone has the right to know what their property is worth, or what they should be spending on a new acquisition or development. Unfortunately, nearly 50% of the data in today’s market is either incomplete, outdated, or incorrect.
That’s why we are revolutionizing the game with our cutting-edge data technology. No matter your role in the CRE landscape, our data gives you the power to always make an informed decision and be the best in your field. Are you ready to get started? Contact us today!