I prefer to restate the question for a business, may it be large or small. I believe that I can be helpful to many commercial individuals by helping to understand why finding out what a history of the business income has to do with the amount of rent they may be asked to pay. Thus, to restate your question: What is a good occupancy cost ratio to use for a business enterprise?
You need to know the total income and expenses for the particular business. This includes cost of sales and reoccurring costs. The total rent for the building should include all the costs of the space, (base rent, plus NNN).
A general guide-line for this is the percentage of rent paid should be no more than thirty percent (30%) of the gross profit of the business. Thus, if a business expected 65% of their gross income to be costs of operation, the rental amount for occupancy cost should be no more than 30% of 35% gross profit. If so, the amount should be no more than 10.5%.
Ten and one-half percent of what is the next logical question? If the occupancy costs are 10.5% of $600,000 gross income, the maximum amount of annual occupancy cost would be $63,000. Total rent, including base and NNN at $36 per square foot would allow for space of 1,750 square feet to be leased.
This approach provides the relationship of space required to income generated and total costs of producing a sound result.
Now, if we could only get some of this applied to the running of government, we possibly would bring common sense to the government enterprise of America. Well it is always good to have wishful thinking!
Onward and upward Lynn….. Rob Baird, CA RE License #544165 (One of the oldest, active licenses in CA) 951 515-5855 Email: email@example.com
Apr 19, 2011