Sales density is the one number a shop's rent depends on, and three choices, area, VAT and period, decide whether it is right.
Sales per square foot is annual sales, net of VAT, divided by the unit's floor area, on one stated measure of area. On an illustrative six-unit scheme a fashion store selling 4,500,000 on 1,500 m² trades at 3,000 per m², or 278.71 per sq ft; the scheme as a whole shows 5,975 per m², but 3,024 once the supermarket is taken out. The number matters because it sets the rent a trade can afford: at a 12 per cent occupancy cost ceiling, 3,000 of sales density supports 240 per m² of rent against the 250 the store pays.
Worked in full in Retail Real Estate by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
Sales density = annual sales excluding VAT / area
Per sq ft = per m² / 10.7639
Excel: =Sales/(1+VAT)/Area if sales are reported gross, then =Density/10.7639
Three choices change the answer and must be fixed before any comparison: which area (gross lettable area, or the sales floor only), whether sales include VAT, and whether the period is a full trading year. Retail is the only property type whose tenants report their sales, and these three choices are where those reports go wrong.
Six fictional units in a small grocery-anchored scheme. Sales are annual and exclude VAT; rents are per m² of gross lettable area (GLA); service charge and rates are an illustrative 120 per m² on every unit.
| Unit | GLA m² | Sales area m² | Sales | Rent per m² |
|---|---|---|---|---|
| Grocery | 4,000 | 3,200 | 36,000,000 | 160 |
| Fashion | 1,500 | 1,200 | 4,500,000 | 250 |
| Health and beauty | 400 | 340 | 2,400,000 | 420 |
| Café | 200 | 150 | 900,000 | 400 |
| Electricals | 800 | 680 | 2,800,000 | 300 |
| Homewares | 1,200 | 1,000 | 1,800,000 | 180 |
| Scheme | 8,100 | 48,400,000 |
Step 1, density per m² of GLA. Fashion: 4,500,000 / 1,500 = 3,000 per m².
Step 2, convert to square feet. 3,000 / 10.7639 = 278.71 per sq ft.
Step 3, rent to sales. Rent of 250 per m² against 3,000 of sales is 8.3 per cent; with the 120 of service charge and rates the occupancy cost ratio is 12.3 per cent.
Step 4, the rent the density supports. At a 12 per cent ceiling for fashion: 12% × 3,000 − 120 = 240 per m², 10 below the passing rent.
| Unit | Per m² GLA | Per sq ft | Occupancy cost | Ceiling | Rent supported | Gap |
|---|---|---|---|---|---|---|
| Grocery | 9,000 | 836.13 | 3.1% | 6% | 420 | 260 |
| Fashion | 3,000 | 278.71 | 12.3% | 12% | 240 | -10 |
| Health and beauty | 6,000 | 557.42 | 9.0% | 12% | 600 | 180 |
| Café | 4,500 | 418.06 | 11.6% | 12% | 420 | 20 |
| Electricals | 3,500 | 325.16 | 12.0% | 8% | 160 | -140 |
| Homewares | 1,500 | 139.35 | 20.0% | 12% | 60 | -120 |
Ranked by density alone, electricals at 3,500 looks healthier than fashion at 3,000. Ranked by what the density supports, it is the most over-rented unit in the scheme, because a low-margin trade has a low ceiling. Density is the input, not the verdict: always set it against the trade's ceiling.
Total sales over total GLA is 48,400,000 / 8,100 = 5,975 per m², 555.12 per sq ft. The simple average of the six unit densities is 4,583 per m². Neither describes the shops: the supermarket does 36,000,000 of the 48,400,000 on half the floor. Without it the other five units trade at 12,400,000 / 4,100 = 3,024 per m², 280.98 per sq ft, half the headline. Report the anchor and the line shops separately, weighted by area.
| Sales per m² | Per sq ft | Rent supported | Against 250 passing |
|---|---|---|---|
| 2,000 | 185.81 | 120 | -130 |
| 2,500 | 232.26 | 180 | -70 |
| 3,000 | 278.71 | 240 | -10 |
| 3,500 | 325.16 | 300 | 50 |
| 4,000 | 371.61 | 360 | 110 |
Every 100 of density moves supported rent by 12 per m², but the fixed 120 of service charge and rates makes rent capacity geared to sales: a 10 per cent fall in density, to 2,700, cuts the rent the unit supports by 15.0 per cent, to 204.
The unit-by-unit tape with the ceiling for each trade, the sustainable rent and the rent at risk is in the free workbook for this case. The ratio itself is worked in how to calculate a retailer's occupancy cost ratio.
It depends on the trade, because margins differ: a grocer can trade at high density on a low occupancy cost ceiling, a homewares store at low density on a higher one. In the illustrative scheme electricals at 3,500 per m² is over-rented while health and beauty at 6,000 is comfortable. Test density against the trade's ceiling rather than against a single benchmark.
Either, as long as it is stated and every comparison uses the same one. Landlords usually work on gross lettable area because rent is charged on it; retailers often benchmark on the sales floor. The illustrative fashion unit trades at 3,000 per m² of GLA and 3,750 per m² of sales area, a 25 per cent difference from the measure alone.
Divide by 10.7639, the number of square feet in a square metre. 3,000 per m² is 278.71 per sq ft and 5,975 per m² is 555.12 per sq ft. To go the other way, multiply by 10.7639.
This article is one calculation from Retail Real Estate. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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