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How to calculate true cost of your office space

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Office leasing is among the most significant costs for any business. While the advertised rent per square foot may appear attractive, the real price can be much higher after you add up the cost of maintenance, utilities and hidden costs. Many businesses overlook these costs and overspend.

This is a simple procedure for calculating the cost of occupancy for office space in India, so that you can budget properly and negotiate more effectively.

1. Usable as opposed to Rentable Area

In India the distinction between carpet area, super built-up area and built-up area is important.

  • Carpet Space: This is the real office space that you can use within the premises.
  • Built-up Area: Carpeted area plus walls and interior spaces.
  • Super-built-up area: Build-up area plus proportionate share of lifts, lobbies or common zones.

The majority of landlords charge rent based on super built-up areas (SBA) and not carpet space. If your carpet covers 5,500 sq. ft. and has a load factor of 25 percent, you might be charged for 6,250 sq. ft.

This is the main reason that increases the cost of office space.

2. Lease Structure: What's Included?

Indian office leases are typically designed in two ways:

  • Warm Shell or managed offices The landlord will provide the furniture and interiors as well as utilities. The rent appears higher; however, the majority of costs are included.
  • Bare Shell/Traditional Lease: You receive the space as it is. Interiors, fit-outs and maintenance are additional. Although the rent might appear cheaper, the actual costs are much higher.

The lease structure can help you understand what's included and the amount you'll have to pay on your own.

3. Base Rent Calculation

The base rent is usually stated at Rs. ft. per month (on SBA).

Example:

  • The size of the office (SBA) is 6,000 square. ft.
  • Quoted rent: Rs80/sq. ft./month
  • Monthly rent is 6,000 times 80 = Rs 4,80,000
  • Annual rent = Rs4,80,000 x 12 = Rs57,60,000

This is your basic rent; however, it's not the complete picture.

4. Add Common Area Maintenance (CAM) Charges

Most commercial office buildings in India In India, almost all commercial offices charge CAM fees that cover cleaning, maintenance of the building, security, lift operations, and power backup.

The typical CAM rate is between 8 and 15 dollars per sq. ft. depending on building quality.

Example:

  • CAM: Rs12/sq. feet. 6000 sq. ft. = Rs72,000/month

Then your monthly cost equals (rent) + Rs4,80,000 (rent) + (CAM) = Rs72,000 (CAM) = 5,52,000.

5. Add Utilities & Overheads

Utilities are typically charged separately:

  • Electricity: based on the consumption (Rs8-12 for each unit). For an office with 6000 square. feet. office space, the monthly costs can range between Rs1-1.5 lakh based on the amount of usage.
  • Water in managed offices: It's included in the lease; however, in conventional leases, you could pay for water separately.
  • Internet/Networking: Rs20,000-50,000/month depending on bandwidth and providers.
  • Parking Fees: Typically, Rs3,000 to 5,000 per month for a car, if it is not included.

For budgeting, assume Rs40-50/sq. feet additional each month for all utility bills.

6. One-Time Fit-Out Costs

If you're leasing just an empty office space, then you'll have to pay for furniture, workstations, interior partitions, wiring, and so on. The cost of fitting out in India typically ranges from Rs2,000-3,000 per sq. feet. subject to the finish.

For the office of 6,000 square. ft. office:

  • Fit-outs equal 6,500 times $2,500 equals Rs1.5 million (one-time)

Sometimes, landlords offer a fit-out allowance or rental-free time (1-3 months) to cover the expense. Make sure to factor this in.

7. Escalations

Leases for commercial properties in India generally have an annual 5% -7% rent increment.

If your rent is set at around $80/sq. feet. By year 5, it could reach as high as Rs100/sq. ft. Always plan costs over the entire lease term, not just the first year.

8. Security Deposit & Advance

The landlords usually demand 6 to 10 months' rent for an unrepayable security deposit.

Example:

  • Monthly rent: Rs 4,80,000
  • The deposit (9 months) = Rs43.2 lakh in advance

Although it is refundable, this will not add to your capital, and must be considered a part of your financial plan.

9. Example: Total Cost Calculation

Let's figure out the actual monthly costs of occupancy for the office of 6,000 square. ft. office in Bengaluru at Rs80/sq. ft.:

  • Base rent = Rs4,80,000
  • Charges for CAM equal Rs72,000
  • Internet and Utilities = 120,000 rupees
  • Parking (10 slots + 4000 Rs) = Rs40,000
  • Total Monthly Outflow = Rs7,12,000

Effective rent per sq. ft. = 7,12,000 / 6,000 = Rs118/sq. ft. (not Rs80 as quoted).

10. Comparing Options

If you are comparing two spaces:

  • Don't be confined to the rent base.
  • Add utilities, CAM parking, and escalation.
  • Spread the cost of fit-out across the lease term to calculate the effective rent.

Sometimes a more expensive managed office is less expensive than a shell lease that is bare when you add fit-out and other utilities.

11. Negotiation Tips

When you sign a lease, make sure to negotiate:

  • Rent-free time (1-3 months to cover expenses for setting up)
  • Cap on charges for CAM (so they don't increase unexpectedly)
  • Parking is included
  • Lower rate of escalation (some landlords will agree to 5% instead of percent)
  • Contribution to fit-out from the landlord

Even the smallest reductions can be significant in a lease with a 5-9 year duration.

Summary: The True Cost Formula

To estimate the actual costs of office spaces in India always include:

Base Rent (Rs/sq. ft.)

  • CAM Charges
  • Utilities (electricity internet, water and parking)
  • One-time costs for fitting-out (amortized)
  • Expansions over lease term

This will give you the actual cost per square foot, which is the thing that is important when you are comparing different options.

Final Word

The rent quoted is only a fraction of the story. The real price of offices in India is dependent on the CAM, utilities fitting-outs, deposits and increases. When you calculate the whole image, businesses can stay clear of financial shocks, negotiate more effectively and select office spaces that are in line with their financial plans.

A bit of diligence prior to signing the lease can help save thousands of dollars every year. It will also ensure that your office space is a source of growth instead of consuming resources.