Commercial Rent Explained

When people start looking at commercial space, the first question is almost always "What's the rent?" But in commercial leasing, rent is rarely just one number. Here's a closer look...

Base Rent

Start with base rent, the simplest part of the calculation. Base rent is quoted on a per-square-foot (PSF) basis, so when an agent quotes a space at $2.00 PSF, you multiply that rate by the square footage to get the monthly amount. A 1,000 SF space at $2.00 PSF comes out to $2,000 per month. From there, additional costs may apply depending on the lease.

What Else Gets Added to Rent?

Depending on the lease, the tenant could also be responsible for some or all of the following:

• Common Area Maintenance (CAM): The tenant's share of the costs to maintain shared areas of the property. Things like landscaping, cleaning, exterior lighting, and janitorial services.

• Property Taxes & Insurance: Often bundled with CAM, but sometimes listed separately.

• Utilities: Either paid directly by the tenant or billed back by the landlord.

• General Excise Tax (in Hawai'i): A state tax applied to both base rent and additional rent.

• Percentage Rent: Common in retail and restaurant leases, this adds a performance-based component where the tenant pays a percentage of their sales on top of base rent, typically once sales exceed a set threshold.

  
  

CAM charges are usually estimated at the beginning of the year based on the property's expected operating costs for that year. At the end of the year, actual expenses are tallied up and compared to what the tenant paid. If costs come in lower, the tenant gets a credit. If they come in higher, the tenant may owe more. This is standard in some commercial leases. For more details on CAM, see this post.

Rent Increases

Most commercial leases build in rent increases over time. These can be a set dollar amount each year, a fixed percentage (for example, 5% annually), or an adjustment tied to current market rates. Either way, both parties should review these carefully before signing.

Free Rent

Some leases include a period during which base rent is waived, sometimes called free rent or rent abatement. It doesn't come up often, but it typically happens when a space has been sitting vacant, when a landlord wants to make a property more competitive, or when a tenant needs help covering moving or build-out costs. Keep in mind that even during a free rent period, the tenant may still be responsible for CAM, utilities, or taxes.

General Excise Tax in Hawai'i

Hawai'i charges a General Excise Tax (currently 4.712%) on business activity, including rent. Regardless of the type of lease, landlords pass this tax on to the tenant. It applies to both base rent and any additional charges, so it's an important number to factor in.

Lease Types: Gross, Modified Gross, and NNN

Not all commercial leases are structured the same way. Depending on the property, the tenant may come across any of these:

• Gross Lease: The tenant pays one flat amount that covers base rent and most operating costs. Simple to budget for, but the landlord assumes the risk if costs rise.

• Modified Gross Lease: A middle ground. Some expenses are included in the rent, others are billed separately. The specifics vary by property and negotiation.

• Triple Net (NNN) Lease: The tenant pays base rent plus operating expenses, typically CAM, property taxes, and insurance, which are added together to determine the total monthly payment. This is the lease structure we work with most because it's transparent for everyone involved; landlords know their costs are covered, and tenants know exactly what they're paying for. For more details on NNN leases, see this post.

  
  

NNN Lease Rent Breakdown:

Here's how rent might add up for a 1,000 SF space under a NNN lease:

Item	Calculation	Monthly Cost
Base Rent	$2.00 PSF × 1,000 SF	$2,000
CAM Charges	$0.40 PSF × 1,000 SF	$400
Hawai'i General Excise Tax (4.712%)	0.04712 × $2,400	$113
Total Monthly Payment		$2,513

Actual terms will vary depending on the property and lease negotiation.

A Note on Quoting Rent in Hawaii

Every state handles rent and lease disclosures differently. Here in Hawaii, only a licensed real estate professional may legally quote rent. This can create confusion, since tenants often ask landlords, receptionists, or property staff for the rent amount.

The Lease Is the Guide

The lease spells out all rent terms, base rent, operating expenses, taxes, and scheduled increases, often in their own sections. Base rent may be covered in one section, while another section addresses additional expenses like utilities. For tenants, reading the lease carefully is the key to accurate budgeting. For landlords, it ensures operating costs are properly covered.

Verbal agreements or informal numbers don't override what's signed. In every case, the written lease governs.

If you'd like guidance on reviewing lease terms or understanding how rent is structured for a specific property, the team at Big Island Commercial Properties is happy to help.

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