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NGExpert financial copywriter
Page written by Ashlyn Brooks. Last reviewed on August 30, 2024. Next review due October 1, 2025.
Understanding the cost to acquire commercial real estate involves navigating a range of metrics, from property type and location to condition and market trends—and that’s just scratching the surface. Among these, one of the most straightforward and commonly used is the price per square foot. This metric offers a quick way to assess property value, helping you make informed decisions whether you’re buying, leasing, or selling.
Here at Swoop, we recognize that securing the right funding is just as crucial as understanding property costs. That’s why we’re here to simplify the process, providing you with the tools and insights to find the best financing options for your small to medium-sized business.
The price per square foot is a simple yet powerful metric used to determine the cost of a commercial property based on its size. It is calculated by dividing the total price of the property by its total square footage.
For example, if a property is priced at $1 million and has 10,000 square feet of space, the price per square foot would be $100. This metric allows for a quick assessment of a property’s cost efficiency and is widely used in real estate transactions.
Depending on the property and transaction type here are a few ways the price per square foot is used when comparing commercial properties:
Calculating the price per square foot is one of the more simplified calculations where it’s only a few steps and very easy to perform.
For instance, if a commercial space is priced at $500,000 and has 5,000 square feet, the price per square foot would be:
Price per square foot =5,000 / 500,000 = $100
Estimating the price per square foot is never the same for any two properties, even if they appear identical. It goes beyond just the basic metrics such as size and location. It encompasses both tangible factors, like the property’s condition and amenities, and intangible elements, such as market trends and future potential.
Prime locations with high demand typically command higher prices per square foot. Downtown areas or popular commercial districts usually have higher rates compared to suburban or less accessible locations.
Newer or well-maintained properties often have a higher price per square foot due to lower anticipated maintenance costs. Buyers are often willing to pay more for properties that require less immediate investment.
Fluctuations in the real estate market, such as changes in supply and demand, can cause prices per square foot to rise or fall. Staying informed about current market trends is essential for accurate pricing.
The type of commercial property—whether office, retail, or industrial—can significantly affect the price per square foot. Each category has its own pricing benchmarks based on use and demand.
Properties with additional features like parking, modern facilities, or green spaces tend to have a higher price per square foot. These amenities add value and appeal, driving up the overall cost.
Average price can range from as low as $5 per square foot for an industrial rate, up to $71 for an office type of real estate. Why the fluctuation? Mostly location.
The table below details the rates for core markets in the US from recent studies.
| City | Office ($/sq ft/year) | Industrial ($/sq ft/year) | Retail ($/sq ft/year) |
|---|---|---|---|
| New York | $71 | $26 | $57% |
| Los Angeles | $41 | $19 | $36 |
| San Francisco | $60 | $27 | $38 |
| Miami | Just under $50 | $15 | Just under $44 |
| Boston | $49 | $15 | $22 |
| Austin | $42 | $11 | $26 |
| Washington D.C. | $40 | $15 | $22 |
| Philadelphia | $38 | $12 | $26 |
| Seattle | $37 | Just under $18 | $28 |
| Atlanta | $36 | $8 | $21 |
| Chicago | Approximately $28 | $9 | Under $19 |
| Dallas | $29 | $5 | $23 |
Source: Offices.net
Using the price-per-square-foot method in commercial real estate comes with several practical advantages. It simplifies the process of comparing properties, no matter their size or layout, which can save you time and effort. This metric also makes budgeting easier, helping you estimate costs more accurately and plan accordingly.
For investors, it offers a quick way to gauge the value of a property compared to others in the area, making investment decisions more straightforward. Plus, when it comes to negotiations, the price per square foot gives you a clear and transparent starting point, making it easier for everyone to agree on a fair deal.
While the price per square foot is a handy tool, it does have some drawbacks. One of the main issues is oversimplification—it doesn’t take into account other important factors like the property’s condition, future potential, or unique location details.
This can lead to inaccurate assessments, especially for properties with unusual layouts or those needing significant renovations. Additionally, the price per square foot can be unreliable during periods of market volatility, as it can fluctuate with changing conditions, making it harder to get a clear picture of a property’s true value.
Ready to explore your commercial real estate options? Swoop is here to make the journey smoother. We offer a user-friendly platform designed to help SMEs find the right funding solutions, whether you’re looking to purchase a new property, refinance an existing one, or consider alternative financing options.
Swoop provides the tools and expertise to guide you every step of the way. Visit Swoop Funding today to check available loans or book a call to discover the best fit for your commercial real estate needs.
Written by
Ashlyn is a personal finance writer with experience in business and consumer taxes, retirement, and financial services to name a few. She has been published in USA Today, Kiplinger and Investopedia.
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