commercial rent calculation | 9 Exercises

Application: Margaux Displays

States :

Les Étalages de Margaux is a fashion boutique specializing in the sale of women's clothing, located on a shopping street in Lyon. The owner is considering renegotiating the store's rent for the following year. The current rent is €30 per year. Margaux has noticed an increase in commercial rents in the region, on average 000% per year. Furthermore, Margaux's interest is to increase the profit margin, while controlling fixed costs, of which rent represents a significant part.

Work to do :

1. Calculate the projected rent for the following year, taking into account the annual increase of 8%.
2. If Margaux's net income after all expenses, including rent, for this year is €50, determine what percentage of her net income is currently being taken up by rent.
3. Assuming that Margaux manages to negotiate a rent increase limited to 5% instead of 8%, calculate the amount saved per year.
4. Analyze how a controlled increase in fixed costs such as rent can help Margaux plan her future investments in new collections.
5. Propose a financial strategy that allows Margaux to limit the impact of rent increases while improving the profitability of her business.

Proposed correction:

1. To calculate the projected rent with an 8% increase, use the formula: initial rent x (1 + increase rate).
   Estimated rent = €30 x (000 + 1) = €0,08 x 30 = €000.
   The projected rent for the following year will be €32.

2. To determine the percentage of net income absorbed by rent, use the formula: (current rent ÷ net income) x 100.
   Percentage = (€30 ÷ €000) x 50 = 000%.
   Thus, 60% of Margaux's net income is absorbed by rent.

3. To calculate the amount saved with an increase limited to 5%, calculate the difference between the forecast rents with the rates of 8% and 5%.

Rent with 5% = €30 x (000 + 1) = €0,05.
Savings = €32 – €400 = €31.
Margaux would save €900 per year.

4. Controlling the increase in fixed costs such as rent allows Margaux to maintain financial stability, which is necessary to invest in attractive collections. Thus, by limiting the increase in rent, it protects its profit margins and improves its investment capacity.

5. Margaux could negotiate tiered rent clauses or seek to diversify her revenues, for example by integrating capsule collections or increasing her online activities. These strategies will help offset the increase in rents while remaining profitable.

Formulas Used:

Title	Formulas
Calculation of the forecast rent	initial rent x (1 + rate of increase)
Calculation of percentage of net income absorbed by rent	(current rent ÷ net income) x 100
Calculation of rent with adjustment for increase	initial rent x (1 + new rate)
Calculation of the savings made	initial rent with 8% – initial rent with 5%

Application: Le Croissant D'Or Bakery

States :

Boulangerie Le Croissant D'Or, located in the heart of Bordeaux, is facing a renegotiation of its commercial lease. Currently, the bakery's rent is set at €1 per month. The owner recently learned that other neighboring businesses have suffered a median rent increase of 500% on their lease renewal. Wanting to anticipate these costs, she wants to assess the potential impact on her budget.

Work to do :

1. Calculate the current annual rent of the bakery.
2. Determine the new monthly rent if the 10% increase is applied.
3. If the bakery's annual sales are €200, calculate what percentage the new annual rent after the increase would represent on turnover.
4. Discuss possible options for the bakery to mitigate the impact of a rent increase on its profitability.
5. Provide a critical analysis of the impact of rising commercial rents on small businesses in urban areas.

Proposed correction:

1. To calculate the current annual rent, multiply the monthly rent by 12:
   Current annual rent = €1 x 500 = €12.
   The current annual rent is €18.

2. To calculate the new monthly rent with a 10% increase, use the formula: current monthly rent x (1 + increase rate).
   New monthly rent = €1 x (500 + 1) = €0,10.
   The new monthly rent would be €1.

3. To calculate the percentage of turnover that the new annual rent represents, use: (new annual rent ÷ annual turnover) x 100.

New annual rent = €1 x 650 = €12.
Percentage = (€19 ÷ €800) x 200 = 000%.
Thus, the new rent would represent 9,9% of turnover.

4. To mitigate the impact of a rent increase, the bakery could slightly increase its prices, diversify its products to attract more customers or negotiate services included in the lease, such as maintenance.

5. Rising commercial rents can squeeze small businesses’ profit margins, sometimes forcing them to close. To survive, they must innovate and optimize their operations to remain competitive despite increasing fixed costs.

Formulas Used:

Title	Formulas
Calculation of current annual rent	monthly rent x 12
Calculation of the new monthly rent	current monthly rent x (1 + % rate)
Calculation of the percentage of turnover represented by the rent	(new annual rent ÷ annual turnover) x 100

App: Fitness Zone City

States :

Fitness Zone City is a fitness center located in Marseille, which wants to change its location to a more modern and spacious premises in order to meet a growing clientele. The current rent is €45 per year for 000 m². The new premises, located in a more central area, offer a space of 500 m², but with an annual rent of €750. Before launching, the manager wants to understand the financial impacts of this move.

Work to do :

1. Calculate the cost per m² for both rooms.
2. What percentage of rent increase does moving to the new location represent?
3. If Fitness Zone City expects a 20% increase in its turnover of €150 after the move, does the change make financial sense?
4. Suggest actions the center can take to optimize the additional space in the new premises to generate additional revenue.
5. In a text of around twenty lines, analyze the strategic impact that this choice of relocation could represent for Fitness Zone City, based on the data provided.

Proposed correction:

1. Calculate the cost per m² for the two premises by dividing the annual rent by the surface area.
   Current cost = €45 ÷ 000 m² = €500 per m².
   New cost = €72 ÷ 000 m² = €750 per m².
   The cost per m² therefore increases by €6 in the new premises.

2. Calculate the percentage increase in rent using the formula: ((new rent – ​​old rent) ÷ old rent) x 100.
   Percentage increase = ((€72 – €000) ÷ €45) x 000 = 45%.
   The move results in a 60% rent increase.

3. Assuming a 20% increase in turnover, the new expected turnover is: €150 x (000 + 1) = €0,20.

With an increase in turnover of €30 for an additional rental cost of €000, the change is financially fair, but must be thought through.

4. To optimize the space, the center could offer additional services such as specialized courses, personal coaching, rent spaces for events or sublet certain parts.

5. Moving to a larger, better-located space can significantly improve Fitness Zone City’s visibility and offerings. Strategically, it allows it to attract new customers, increase class sizes and diversify services. This investment and risk can also provide a competitive advantage, if executed well. The big unknown is the ability to actually generate the 20% increase in revenue forecast. Fitness Zone must evaluate its marketing strategy and develop new attractive offerings to ensure stable growth.

Formulas Used:

Title	Formulas
Calculation of cost per m²	annual rent ÷ area
Calculating the percentage increase	((new rent – ​​old rent) ÷ old rent) x 100
CA forecast with increase	turnover x (1 + increase %)

Application: Deliceus Fine Grocery

States :

Deliceus is a delicatessen in Lille, known for its local and organic products. Recently, it received an offer to move to a more touristy area. The rent for the new location would be €3 per month, compared to €000 currently. Before making the move, Deliceus wants to compare these costs and study the potential impacts on its finances and business strategy.

Work to do :

1. Calculate the annual rent difference between the current location and the new location.
2. Determine what percentage of monthly rent increase this represents.
3. If Deliceus expects a 15% increase in its current annual revenue of €120 as a result of this move, calculate the new revenue target.
4. Consider the budgetary implications of increasing your rent on your profit margin if the current margin is 30%, and justify your answer.
5. Propose and justify two different strategies that Deliceus could adopt to maximize the benefits of this location change.

Proposed correction:

1. Calculate the annual rent difference: (new rent – ​​old rent) x 12.
   Annual difference = (€3 – €000) x 2 = €250.
   The annual rent difference is €9.

2. To determine the monthly increase percentage, use the formula: ((new rent – ​​old rent) ÷ old rent) x 100.
   Percentage increase = ((€3 – €000) ÷ €2) x 250 = 2%.
   The rent increases by 33,33% monthly.

3. To calculate the new turnover target, add 15% to the current turnover: €120 x (000 + 1) = €0,15.

The new turnover target is €138.

4. A rent increase can reduce the profit margin. With a margin of 30%, or €36 currently, it is worth comparing with the new target and costs:
   New profit = €138 x 000 = €0,30.
   However, deduct the rent increase (€9) to get a real net profit. The new location must therefore justify a strong value-added strategy.

5. Deliceus could adopt strategies such as a diversification of the offer, with tasting workshops that promote its products in this tourist area. Another strategy would be to develop a wide range of special seasonal offers to take advantage of the tourist traffic, thus ensuring an increase in the average basket per customer.

Formulas Used:

Title	Formulas
Calculation of the annual rent difference	(new rent – ​​old rent) x 12
Percentage of monthly increase	((new rent – ​​old rent) ÷ old rent) x 100
Calculation of the new turnover target	turnover x (1 + increase %)

Application: Le Scribe Bookstore

States :

Located in the heart of Montpellier, Librairie Le Scribe is facing a probable rent increase of up to 20% when renewing the lease. With a current rent of €2 per month, the owner is looking for solutions to absorb this cost without compromising financial health. At the same time, an opportunity to extend the premises is under negotiation, representing significant potential attraction, but also an additional cost.

Work to do :

1. Calculate the new monthly rent after the 20% increase.
2. Find the annual rent after this increase and compare it to the current one.
3. If the extension of the premises would add €750 to the monthly rent, what would be the total annual rent for the increased space?
4. Evaluate the benefits and risks of expansion, considering fluctuating sales and increasing customer base.
5. To analyze how flexible structuring of schedules and types of services could influence the efficient absorption of increased costs.

Proposed correction:

1. Calculate the new monthly rent using the formula: current monthly rent x (1 + rate of increase).
   New monthly rent = €2 x (500 + 1) = €0,20.
   The new monthly rent would be €3.

2. Calculate the annual rent after increase: new monthly rent x 12 and compare with the current one.
   New annual rent = €3 x 000 = €12.
   Current annual rent = €2 x 500 = €12.
   The increase represents an annual difference of €6.

3. With the extension, additional rent = €750 per month or (€750 x 12).

Total rent after extension = (€2 + €500) x 750 = €12.
Considering the extension, the total annual rent is €39.

4. Expansion may provide a better shopping experience and attract more customers, but it requires increased sales to cover the resulting rent increase. There is a real risk of under-occupancy if demand does not follow.

5. By structuring the bookstore in a flexible way, with extended opening hours or literary events, the risk incurred can be transformed into an opportunity for loyalty and promotion of the enlarged premises. This would make it possible to amplify customer flows and boost sales by absorbing increased costs more effectively.

Formulas Used:

Title	Formulas
Calculation of the new monthly rent	current monthly rent x (1 + % rate)
Calculation of the new annual rent	new monthly rent x 12
Calculation of annual rent with additional extension	(current monthly rent + extension) x 12

Application: CréaTerra Ceramics Workshops

States :

CréaTerra is a ceramics workshop located in a tourist-friendly village. The current rent is €1 per month. The workshop owner has learned that the landlord plans to increase the rent by 200% in the coming months. Considering several scenarios, she must juggle the balance between increasing costs and customer experience to remain attractive and profitable.

Work to do :

1. Calculate the amount of the new monthly rent after the 12% increase.
2. What is the annual financial impact of this rent increase for CréaTerra?
3. Estimate the percentage increase needed in the current turnover of €50 to compensate for the rent increase alone.
4. Suggest product diversification ideas to increase revenue while making the workshop more attractive.
5. Taking into account seasonal fluctuations in customer base, discuss strategies that could be implemented to optimize seasonal presence.

Proposed correction:

1. Calculate the new monthly rent amount from: current monthly rent x (1 + 12%).
   New rent = €1 x (200 + 1) = €0,12.
   The new monthly rent will be €1.

2. The annual financial impact is determined by the difference between the new annual rent and the current annual rent: (new rent – ​​current rent) x 12.
   Annual Impact = (€1 – €344) x 1 = €200.
   The annual increase in the total cost is €1.

3. To estimate the increase in turnover required, use: (annual increase ÷ current turnover) x 100.

% required = (€1 ÷ €728) x 50 = 000%.
An increase of around 3,46% in turnover is needed just to compensate for the increase in rent.

4. In order to diversify revenues, CréaTerra could expand its range with additional products such as personalized creation workshops, sale of related products or co-branding with local artists.

5. To take advantage of seasonal variations, targeted marketing campaigns during tourism peaks can increase attendance. Additionally, organizing events such as openings can also boost local and tourist engagement.

Formulas Used:

Title	Formulas
Calculation of the new monthly rent	current monthly rent x (1 + % rate)
Annual impact of the increase	(new rent – ​​current rent) x 12
% increase in turnover required	(annual increase ÷ current turnover) x 100

Application: Paws and Feathers Veterinary Clinic

States :

The veterinary clinic Pattes et Plumes located in Nice is in negotiations for the renewal of its commercial lease with the risk of a 15% rent increase. The current rent is €4 per month. The owner, keen to optimize the financial structure of his clinic while offering quality care, is seeking to anticipate the impact of this potential increase.

Work to do :

1. What will the new monthly rent be if the increase is accepted?
2. Compare the annual rent increase to its annual turnover of €500, then express it as a percentage.
3. Propose a strategy for distributing services or offers to cushion this increase.
4. What effects on customers can result from adjusting prices or services to compensate for increased rents?
5. Justify with three arguments how optimized personnel and schedule management could effectively reduce indirect operational costs.

Proposed correction:

1. The new monthly rent with a 15% increase is €4 x (000 + 1) = €0,15.
   The new monthly rent is therefore €4.

2. Calculate the annual increase: (new rent – ​​old rent) x 12, then express as a percentage of turnover.
   Annual increase = (€4 – €600) x 4 = €000.
   % of turnover = (€7 ÷ €200) x 500 = 000%.
   The increase represents 1,44% of annual turnover.

3. Cushioning the increase could involve creating annual packages, increasing preventive services or promoting regular memberships to reduce the unit impact.

4. A price adjustment can result in a perception of increased value, but be careful about price sensitivity. Improved customer experience can justify higher prices.

5. Optimized staff management could include reducing overtime, flexible schedules based on attendance, and training to increase versatility, which would reduce organizational costs.

Formulas Used:

Title	Formulas
Calculation of the new monthly rent	current monthly rent x (1 + % rate)
Calculation of the annual increase	(new rent – ​​old rent) x 12
% increase compared to turnover	(annual increase ÷ annual turnover) x 100

Application: WebStereo Digital Agency

States :

WebStereo, a digital agency located in Strasbourg, is looking for new offices. The current setup costs them €4 per month. The new space they are considering offers a monthly rent of €500 with more meeting rooms and residing in an attractive tech hub area. The CEO considers the benefits in terms of recruitment and image for the company compared to the costs.

Work to do :

1. Calculate the annual cost difference between the two spaces.
2. If the budget for the year is €300, how many percent of the budget does each rental option represent?
3. In the context of this transition, what purely financial arguments could justify the additional expenditure?
4. Estimate two likely non-financial benefits that the new space would provide for WebStereo.
5. Analyze the long-term impacts that this move could/should have on the company's HR (human resources) strategy.

Proposed correction:

1. The annual cost difference is: (new rent – ​​old rent) x 12.
   Annual difference = (€6 – €000) x 4 = €500.
   The annual cost increase would be €18.

2. Calculate percentage by: (loo option ÷ annual budget) x 100.
   For current rent: (€4 x 500 ÷ €12) x 300 = 000%.
   For the new rent: (€6 x 000 ÷ €12) x 300 = 000%.
   Currently, rent represents 18% of the budget, compared to 24% with the change.

3. Financial benefits include a long-term customer value outlook, stronger competitive positioning and increased growth opportunities in the expanding tech market.

4. Non-financially, new modern offices can improve productivity and boost creativity. They can also attract new talent, into key teams, because of the attractiveness of the working environment.

5. Strategically, this transition should lead WebStereo to reconsider its telework policies, but also to promote effective collaborative work based on available infrastructures and technologies. Employee satisfaction could thus improve with their retention.

Formulas Used:

Title	Formulas
Annual cost difference	(new rent – ​​old rent) x 12
% of budget represented by rent	(annual rental cost ÷ annual budget) x 100

Application: Restaurant Gourmandise & Passion

States :

Gourmandise & Passion, a gourmet restaurant in the heart of Angers, is undergoing a suggested rent revaluation of €4 per month, instead of the current €800. The chef fears that such a change will harm the budget allocated for the fine ingredients that are essential to their reputation. Before concluding, a reflection on compromises and alternative solutions is considered.

Work to do :

1. What is the annual additional cost of this rent increase?
2. If the expected monthly turnover is €30, calculate the percentage that this revalued rent would represent.
3. Propose a strategy to replicate this additional cost in menu prices without reducing attendance.
4. Develop two options to optimize restaurant operating costs without compromising quality.
5. To what extent can transparent communication with customers respond to this economic situation? Argue.

Proposed correction:

1. Annual additional cost = (new rent – ​​old rent) x 12.
   Annual additional cost = (€4 – €800) x 4 = €000.
   The increase generates an additional cost of €9 per year.

2. Percentage of turnover: (new rent ÷ monthly turnover) x 100.
   % of turnover = (€4 ÷ €800) x 30 = 000%.
   The rent would occupy 16% of the re-evaluated monthly turnover.

3. Slightly increasing the prices of premium menus or introducing attractive seasonal menus could help dilute the impact on the staff budget while still offering innovative gourmet offerings.

4. Optimizing costs can include strict inventory management, avoiding waste, working with local suppliers for negotiated rates, or developing a more efficient online booking system.

5. Transparency with customers could serve to explain and justify price increases by sharing the reasons behind these decisions, highlighting a future commitment to quality ingredients and excellent service.

Formulas Used:

Title	Formulas
Calculation of the annual additional cost	(new rent – ​​old rent) x 12
Percentage of budget represented by rent	(new rent ÷ monthly turnover) x 100