Did you know that the United States has one of the largest commercial real estate markets globally, valued at approximately $1.2 trillion? That’s a staggering figure that showcases the immense scale and economic impact of the industry.
Within this vast market, different sectors have varying sizes, with the industrial sector covering a whopping 21.7 billion square feet, followed by retail with 14 billion square feet and offices with 11.8 billion square feet. These numbers highlight the diverse range of commercial properties available throughout the country.
Now, let’s dive into the specifics. In Q1 2023, the average price per square foot for US offices was $38, retail averaged $18.09 per square foot, and industrial space was just under $8 per square foot. However, it’s important to note that these are average prices and can vary significantly depending on the location and real estate class.
- The US commercial real estate market is valued at approximately $1.2 trillion.
- The industrial sector is the largest, covering 21.7 billion square feet.
- Office space averages \$38 per square foot, retail at \$18.09, and industrial space at just under \$8 per square foot.
- Price per square foot varies depending on location and real estate class.
- The commercial property market offers a diverse range of opportunities throughout the country.
Average Commercial Property Prices in Key US Cities
The average commercial property prices in key US cities vary significantly. Let’s take a closer look at some of the major cities and their respective average rates:
New York
In metro New York, the average gross rate for offices is $77 per square foot per year, while industrial space averages $19 per square foot per year.
Los Angeles
In Los Angeles, office prices average around $44 per square foot per year, while industrial premises cost $11 per square foot per year.
Miami
Miami has comparable rates, with office prices at $46 per square foot per year and industrial space at $8 per square foot per year.
Boston
In Boston, metro office prices are $38 per square foot per year, but prices rise to $80 in Cambridge. Industrial properties in Boston average $10 per square foot per year.
Philadelphia
Philadelphia offers city center offices at $32 per square foot per year, suburban space at $27 per square foot per year, and industrial properties at $6 per square foot per year.
Atlanta
Atlanta has offices priced slightly under $30 per square foot per year, with a rate of $35 in Downtown Atlanta. Industrial space costs an average of $5 per square foot per year.
Chicago
In Chicago, office space is approximately $33 per square foot per year, but prices rise to averages above $40 in The Loop. Industrial premises in Chicago average $6 per square foot per year.
Dallas
Dallas and other urban centers in Texas have average office rates between $25 and $30 per square foot per year, with industrial rates below $5 per square foot per year.
These average prices provide a general overview of commercial property costs in these cities. It’s essential to consider location-specific factors and market trends when evaluating specific properties and investment opportunities.
How to Calculate Price Per Square Foot in the USA
When considering commercial real estate in the United States, calculating the price per square foot is essential for making informed decisions. The price per square foot varies depending on the market and lease structure. Understanding these factors will help you estimate costs accurately.
Calculating Prices in US Markets
In most US markets, prices are calculated on an annual basis. However, it’s important to note that in states like California, prices are often quoted monthly by default. This distinction is crucial when comparing prices and budgeting for expenses.
Lease Structures
Lease structures play a significant role in determining the price per square foot. Two common types of leases are gross leases and triple net leases.
Gross leases, also known as full-service leases, are commonly used in commercial real estate. In a gross lease, landlords cover most operating expenses and pass them on to tenants as a load factor. This approach simplifies financial planning for tenants, as operating expenses are typically included in the lease.
Triple net leases shift the responsibility of covering operational expenses to tenants. These expenses may include property taxes, insurance premiums, and maintenance costs. It’s important to carefully review the terms of a triple net lease to ensure you understand your financial obligations.
Determining Base Rent
Base rent is a crucial component of calculating the price per square foot. It is determined by considering several factors, including the lease type, landlord conditions, and market dynamics such as demand and vacancy rates. Base rent reflects the fundamental cost of occupying the space and sets the foundation for additional expenses.
To calculate the final price per square foot, divide the property’s asking sale price by its total square footage. This will give you a clear understanding of the cost associated with each unit of space.
Example: Price Per Square Foot Calculation
| Property | Asking Sale Price | Total Square Footage | Price Per Square Foot |
|---|---|---|---|
| Office Space A | $800,000 | 10,000 | $80.00 |
| Retail Space B | $500,000 | 5,000 | $100.00 |
| Industrial Space C | $1,200,000 | 20,000 | $60.00 |
This table showcases an example of calculating the price per square foot for different types of commercial properties. By dividing the asking sale price by the total square footage, you can determine the price per square foot for each property.
Understanding how to calculate price per square foot and considering lease structures is vital when assessing the affordability and profitability of commercial real estate in the USA.
Conclusion
The US commercial property market has experienced significant impacts due to the COVID-19 pandemic, leading to altered market dynamics. The emergence of remote work and changing employee expectations has fueled a growing demand for shared and non-traditional workspace options.
While the industrial and retail sectors have rebounded well, achieving higher occupancy rates compared to pre-pandemic levels, the office space sector is still facing challenges in terms of occupancy. However, rental prices across all sectors have shown positive growth, albeit at a slightly slower rate due to inflation and concerns about a potential recession.
As the market continues to adapt to these changes, the outlook for the US commercial property market remains uncertain. The ongoing effects of the pandemic and evolving dynamics will shape the future of this market, requiring industry stakeholders to remain agile and responsive to fluctuating demand and changing work patterns.
FAQ
How is the price per square foot for US commercial properties calculated?
The price per square foot in the USA is calculated differently depending on the market and lease structure. Most markets calculate prices on an annual basis, but in some states like California, prices are quoted monthly by default. Prices also depend on the type of lease taken. Gross leases, also known as full-service leases, have landlords covering most operating expenses and passing them on to tenants as a load factor. Triple net leases, on the other hand, require tenants to cover operational expenses. Base rent is determined by considering the lease type, landlord conditions, and market factors such as demand and vacancy rates. The final price per square foot is obtained by dividing the property’s asking sale price by its square footage.
What are the average commercial property prices like in key US cities?
The average commercial property prices in key US cities vary significantly. In metro New York, average gross rates for offices are $77 per square foot per year, while industrial space averages $19 per square foot per year. In Los Angeles, office prices are around $44 per square foot per year, and industrial premises cost $11 per square foot per year. Miami has similar rates, with office prices at $46 per square foot per year and industrial space at $8 per square foot per year. In Boston, metro office prices are $38 per square foot per year, rising to $80 in Cambridge, while industrial properties average $10 per square foot per year. Philadelphia has city center offices at $32 per square foot per year, suburban space at $27 per square foot per year, and industrial properties at $6 per square foot per year. Atlanta has offices priced slightly under $30 per square foot per year, with a rate of $35 in Downtown Atlanta, while industrial space costs an average of $5 per square foot per year. In Chicago, office space is approximately $33 per square foot per year, rising to averages above $40 in The Loop, and industrial premises average $6 per square foot per year. Dallas and other urban centers in Texas have average office rates between $25 and $30 per square foot per year, with industrial rates below $5 per square foot per year.
How has the US commercial property market been impacted by COVID-19?
The US commercial property market has been impacted by COVID-19, resulting in altered market dynamics. The pandemic has influenced employee expectations regarding workspace flexibility, leading to increased demand for shared and non-traditional workspace. While industrial and retail spaces have seen higher occupancy rates compared to pre-pandemic levels, office spaces lag behind. Despite lower occupancy levels, rental prices have seen positive growth, although there has been a slight decrease in recent growth rates due to inflation and concerns of a potential recession. The market continues to adapt to these changes, and the future outlook remains uncertain as the effects of the pandemic continue to unfold.