Table of Contents of Rentable Vs. Usable Square Footage
Choosing the right location and the appropriate amount of space for your business is a monumental decision. During this process, you’ll come across various layers of information and definitions that can significantly impact both your success and budget. Among these considerations, one of the key factors is grasping the distinction between usable and rentable square footage, and avoiding common pitfalls associated with each.
What’s the Difference Between Usable and Rentable Square Footage?
Distinguishing between usable, rentable, and gross square footage may seem subtle, but it’s crucial to grasp these concepts when negotiating a lease. All three terms can be found in your lease agreement, yet only one is utilized to calculate your actual annual rent expenses. In this article, we will explain the differences between usable, rentable, and gross square footage and emphasize why understanding these distinctions is crucial.
Usable Square Footage
Usable Square Footage (USF) represents the total floor area within a space or building that can be effectively utilized. It encompasses measurements taken from the outer surface of exterior walls and windows, including the midpoints of interior walls adjoining other spaces, hallways, or common areas. Unlike the measurement approach employed in assessing homes, which often starts from the inside of the walls, USF is determined by measuring from the exterior walls.
This space is what a tenant will physically occupy, contrasting with Rentable Square Footage (RSF), which determines the area for which rent is paid. Occasionally, you may encounter the term Leasable Square Footage as a synonym for Usable Square Footage. It’s important to note that architects and tenants often measure a space by taking interior wall measurements, which may yield a smaller figure than the landlord’s calculation of RSF or USF. While interior measurements are valuable for space design and budgetary purposes, they do not align with the definitions of USF or RSF.
Accurate measurement of USF requires an understanding of measurement locations and the thickness of walls. Architects or space planners are better equipped to provide precise measurements compared to individuals using tape measures or lasers. Comparing field measurements with verified CAD documents can further reduce potential errors.
USF should exclude common areas within a building, such as public corridors, hallways, restrooms, and similar spaces. The official definition of USF pertains to the area or square footage a tenant will directly occupy.
How to Calculate Usable Square Feet?
The calculation of Usable Square Feet is based on the area exclusive to a tenant’s use. Think of it as the space specifically designated for your company’s operations. Once you step into your suite, the interior becomes part of the usable square footage.
For tenants leasing partial floors, this includes all office spaces and any storage areas or private restrooms specific to your suite. It also encompasses spaces occupied by columns or recessed entries.
On the other hand, full-floor tenants have usable square footage extending to everything within the floor boundaries, including non-usable areas like janitorial closets or mechanical and electrical rooms. This calculation also takes into account floor common areas such as kitchenettes, hallways, or reception areas tailored to the floor’s use. However, it excludes spaces like elevator shafts or stairwells, as these are not unique to a single tenant.
Understanding usable square footage is crucial, as it precisely indicates the amount of space available for conducting business activities.
Rentable Square Footage
Rentable Square Footage (RSF) constitutes the total square footage for which tenants are required to pay rent. This figure encompasses both the Usable Square Footage (USF) and the tenant’s pro-rata allocation of the Building Common Areas. Building Common Areas include spaces like lobbies, public corridors, hallways, restrooms, utility closets, and fire-sprinkler rooms. To illustrate, in a scenario where an office complex accommodates ten tenants who share common areas, each tenant’s proportionate square footage share is determined based on the percentage of USF they occupy within the building.
The concept of pro-rata sharing extends to the cost of maintaining these common spaces, which is distributed on a proportional scale. The square footage and associated expenses are integrated into the RSF.
It’s important to note that RSF differs from USF in that USF exclusively refers to the specific space occupied by a tenant, whereas RSF includes a portion or percentage of the property’s communal areas.
The pro-rata share is also known by various terms, such as the Rentable/Usable (R/U) Factor, Core Factor, Loss Factor, or Common Area Factor. Regardless of the title, this factor typically falls within a range of 1.10 to 1.20 percent of the USF, depending on the particular building. Generally, a tenant occupying an entire floor of an office building will have a lower R/U Factor compared to one occupying only a portion of a floor.
How to Calculate Rentable Square Footage?
To provide an example, if the USF measures 3,000 square feet, and the R/U Factor or Common Area Factor is 1.20 percent (equivalent to 20%), the calculation is as follows: 3,000 square feet x 1.20 = 3,600 Rentable Square Feet.
In instances where buildings or properties offer additional amenities like conference room facilities or fitness gyms, these square footages are often included in the common areas, potentially increasing both the R/U Factor and the overall RSF.
Even properties like retail buildings or single-story office or industrial buildings, which lack noticeable common areas or interior public corridors, may still have a minor additional R/U Factor. This increase in RSF can stem from features like a common building utility closet or fire alarm room or fire-sprinkler riser room.
When evaluating the RSF of a property, it’s crucial to understand that you are paying for additional square footage as part of your pro-rata share of the common areas, in addition to your USF. Additionally, you will bear your pro-rata share of the expenses associated with maintaining the common areas and the overall property.
Common Misconceptions of Rentable vs. Usable Square Footage
One of the most prevalent errors tenants make is relying on the Rentable Square Footage figure advertised when determining their actual space requirements. Tenants often consult with architects to estimate the space they need without realizing the potential substantial disparity between their perceived needs and the final Rentable Square Footage, especially in the context of office buildings.
To illustrate, in the scenario we discussed earlier, if a tenant believes they require 3,000 Usable or Buildable Square Feet for their space but lacks an understanding of the difference between usable and rentable, they may search for a space measuring 3,000 square feet. In reality, they might end up with a space that is 3,600 Rentable Square Feet, of which 3,000 is Usable Square Feet—i.e., the area they can actually build out and occupy.
This oversight can lead to a range of issues, such as investing weeks or months in evaluating spaces of the wrong size. Worse yet, if a lease is signed before the tenant fully comprehends this mistake, they may find themselves committed to a space for five to ten years, even though it has been too small for their needs from day one.
In conclusion, comprehending the distinction between Usable and Rentable Square Footage constitutes a small yet pivotal step in mastering commercial real estate concepts. This knowledge can empower you to make the most of every opportunity and ultimately enhance your profitability in the realm of real estate.