We know that the commercial real estate world has its own, oftentimes confusing, language. There are certain CRE terms that you need to understand, like rentable area vs usable area and their footage, in order to be an informed renter.
You may think that usable and rentable square footage are the same at first, but there are some important differences that you should be aware of.
Being able to differentiate usable and rentable square feet is essential if you want to know how much space you’re really going to get when you rent an office. Knowing the distinctions will help you ensure that you’re getting the best possible deal on office space as well, and you can estimate how much space you will get with more accuracy.
Usable square footage explained
What is the difference between usable and rentable square footage? Well, usable square footage in an office is associated with all the space that will be used solely by your company. That obviously includes all the office areas that will be available for your company and employees to work in. That space is where your desks, furniture, equipment, meeting rooms, etc will be in. Storage spaces, restrooms or break rooms designated especially for your company are included in the usable amount of space.
Another contributing factor might be the fact whether your company has the entire floor to itself or not. If it does, space like the electrical or janitor’s room might also be included in the usable space if their use is meant for that floor only.
The term “usable” is not entirely true given the fact that square footage occupied by columns is still technically considered to be usable square footage. This also applies to other useless spaces in a practical sense like recessed entries. When you’re viewing an office space in person, take notes of such areas and subtract them from the usable square footage number you’ve been given.
Rentable square footage explained
Rentable square footage is the amount that your rent will be based on, and includes all the usable square footage and a percentage of common areas in a given building. Common areas may include lobbies, hallways, restrooms and are available to anyone, as well as conference rooms and spaces that can be shared amongst other tenants.
Can a building owner predict how much each company on one floor or in a building will utilize in the common areas? They certainly can not. The truth is, some businesses will utilize them more than others, but that is not that important due to it being figured as a pro-rata share. The renters will pay for the common area spaces in proportion to the amount of usable office space they are renting.
The load factor
To calculate rentable square feet, landlords use the so-called Load factor (also known as a common area factor or add-on factor). This number is based on the % of common areas in a building. Let’s say, if a building has a total of 100,000 sqft, with 85,000 usable square footage (and 15,000 square feet of common areas), the load factor would be equal to the rentable square feet divided by usable square footage.
How to calculate rentable square footage?
Rentable square feet / Building usable square footage = Load factor
100,000 sqft / 85,000 sqft = 1.15
The load factor is then multiplied by individual tenants’ usable square feet to get the total amount of rentable square feet. If a company wants to lease 5,000 usable square feet, then this number would be multiplied by the load factor of 1,15 to get the number of rentable square feet:
Tenant Usable Square Feet x Load Factor = Tenant Rentable Square Feet
5,000 usable square feet x 1.15 = 5,750 rentable square feet
The rentable sqft amount then gets multiplied by a rental rate to get the company’s total annual or monthly rent.
This formula helps companies to evaluate best deals for their office spaces.
Load factors in real estate are most commonly represented by a percentage, usually ranging between 10% and 50%. Often a partial-floor tenant will pay for the common area too, in order to pay use of the floor’s bathrooms and corridors. The landlord calculates tenants’ usable sqft times the proportion of space that tenant occupies on the floor, to get the floor’s rentable sqft number. That number will also get multiplied by the load factor of the building.
Some space is neither rentable or usable – rentable area vs usable area
When it comes to rentable vs. usable square footage, even though rentable square feet encompasses the majority of the building, there can be several exceptions. Elevator shafts, parking lots, stairwells and areas of the building which are used for its general operation will be included in the gross sqft of the building, but will not count as rentable square feet.
Now that you have more knowledge of commercial real estate, how rentable vs usable square footage works, and how office listings are actually calculated. When you are looking for new office space, you will be working with a CRE broker who will walk you through situations like this, but it’s always better for you to be prepared and have some insight.