A proper evaluation of usable vs rentable square feet is the difference between a great or an awful commercial lease. Even if you know the difference, you can still get a bad deal through a miscalculation of the space.
To avoid this, you must understand the calculation method and enlist the help of an unbiased third-party professional. They will ensure no minor miscalculations occurred.
Because landlords often charge based on the square footage, you can end up with a much larger financial obligation due to a small error.
First, you must understand the difference between usable and rentable square footage calculations.
Usable square footage accounts for the areas you will occupy to conduct daily business. Office spaces, kitchen/break rooms and even a private restroom within your suite all make up the usable square footage.
Rentable square feet includes the usable space plus common areas of the building (e.g. hallways, lobbies and common restrooms). The price per rentable square foot includes a pro-rata calculation based on the size of your lease space.
Landlords calculate rentable square feet based on the load factor (aka, common area or add-on factor). They base this number on the percentage of common areas in the building.
To find the load factor, you’ll use a basic equation:
Building Rentable Square Feet ÷ Building Usable Square Feet = Load Factor
Let’s say a building’s total square footage equals 100,000. If 85,000 was usable square feet, then the building would have 15,000 square feet of common areas. So, the equation would look like this:
100,000 ÷ 85,000 = 1.15
Once you have the load factor, it’s time to determine the rentable square feet that you’ll contribute to. That equation looks like this:
Tenant Usable Square Feet x Load Factor = Tenant Rentable Square Feet
Once you know this formula, you can evaluate which office space offers the best deal.
Suppose you narrowed it down to two 5,000 usable square foot offices. Each space had the same monthly rent, but one office had a 1.15 load factor and the other had a 1.25. Using the equation, you’d find:
5,000 x 1.15 = 5,750
5,000 x 1.25 = 6,250
The first building could only charge you for 5,750 sq ft of space. But the second building would charge rent for 6,250 sq ft. Ultimately, the first building would save you money.
An accurate calculation could save your company thousands of dollars over the term of your lease. However, you might not always want to go with the smaller space. Perhaps the more expensive choice has better amenities that make the extra financial investment worth it.
But either way, you need to understand these calculations to make the most educated decision for your company.
Could you use some help along the commercial real estate journey? Our selfless team will happily assist you every step of the way. Contact Keyser today to discuss your needs.