Price Per Square Foot Explained: A Net-Lease Buyer's Shorthand

What it is

Price per square foot is simple: take the purchase price, divide it by the building's rentable square footage. A $2,000,000 building on 5,000 square feet pencils to $400 per foot. That's it. It's a shorthand — one number that lets you compare a deal against other deals in seconds, before you've opened the rent roll or read a single page of the lease.

How it plays out in retail net lease

Here's how I look at it. In single-tenant net lease, you're really buying an income stream backed by real estate. Price per square foot is the second number I glance at, right after the cap rate. The cap rate tells me what the deal yields. The dollar-per-foot tells me what I'm actually paying for the dirt and the box — the part that outlives the current tenant.

That second question matters more than people think. A drugstore, a quick-serve restaurant, and an auto-parts store can all trade at a similar cap rate and still be priced wildly differently per foot, because the buildings and rents are different. A small pharmacy pad might run high per foot on a low rent. A big-box store spreads its price across a lot of square footage, so the per-foot number looks cheap even when the total check is large.

The mistake I see buyers make is treating a low price per foot as a bargain and a high one as overpaying. Neither is true on its own. The number only means something once you know the rent per foot behind it and what it would cost to put a new tenant in that box if you had to.

What to watch for

• Rent per foot, not just price per foot. A cheap building with above-market rent isn't cheap — you're buying a rent that may not renew at that level.
• Replacement cost. If you're paying well below what it costs to build that box today, that's real downside protection. Well above it, and you're leaning entirely on the tenant.
• Land value versus building value. On a strong corner, you may be paying for location, not the structure. That can be fine — just know which one you're buying.
• Building size skew. Big boxes look cheap per foot; small pads look expensive. Compare like sizes and like uses, not across categories.
• Gross versus rentable square footage. Make sure the denominator is honest. Sloppy measurements move the number.
• Second-generation use. Ask what else could occupy the space. A generic rectangle re-leases far easier than a purpose-built box with a drive-thru and a brand's fixtures baked in.

How to use it to your advantage

I use price per foot as a triage tool. It's how I sort a stack of listings fast and decide what's worth real underwriting. When a deal is priced far below replacement cost, I lean in — even if the tenant hiccups down the road, the real estate gives you a floor. When it's priced well above what I could build it for, the whole thesis rests on that tenant staying, and I want to be paid for that risk in the cap rate.

It's also a negotiating anchor. If comparable buildings in the market trade at $300 a foot and you're being shown $450, that gap is a conversation. Sometimes it's justified by a rare location. Often it's just optimism in the asking price.

Best case, worst case

Best case:

• You buy below replacement cost, so the real estate protects you regardless of tenant.
• The rent per foot is at or under market, giving the next tenant room to sign.
• The box is generic and re-leases quickly if it ever goes dark.

Worst case:

• You pay a premium per foot on a purpose-built box that only one type of user wants.
• Rent is above market, so a renewal or re-lease comes in lower and value resets down.
• If a location were to close, you're left with a hard-to-backfill building bought at a rich number.

Run the number on every deal, then keep going. Price per square foot starts the conversation — it never finishes it.

This is general education, not investment advice. Verify everything independently before you act.