Commercial real estate listings are, if anything, designed to be flashy and attractive. That means professional photography, easy-to-read bullet points, and – most prominently – total square footage. But landlords use a formula to calculate a tenant’s total rental rate that combines the listed square footage with how much space they’ll use in common and shared areas throughout the building – and that can be confusing for tenants looking to save as much as possible on their commercial real estate leases.
Before you commit to a lease agreement, you’ll want to understand the following terms: usable square footage, rentable square footage, and Common Area Factors. Knowing which is included in your lease can save you a considerable amount of money during the lifespan of your agreement and help you avoid paying for square footage you may actually never see – let alone utilize.
Usable vs. Rentable Square Footage
Usable square footage (USF) is defined as the total square footage a tenant occupies. Depending on the size of the tenant’s lease (square footage and number of floors occupied), the usable square footage may include restrooms, maintenance areas, and elevators across several floors. More commonly, any recessed sections or support columns are considered non-existent when landlords calculate usable square footage.
Rentable square footage (RSF) encompasses the usable square footage, plus a portion of the building’s common area. RSF is calculated by multiplying the lease rate per square foot by the listed square footage plus a percentage of all the shared or common areas in the building. While this includes areas your company will have access to like restrooms, cafeterias, elevators, stairwells, and lobbies, you’ll also be contributing to maintenance, building storage, and janitorial closets.
Common Area Factor
Common Area Factors, or add-on or load factors, are an increase in rentable square footage above usable square footage. Tenants share a percentage of the costs of shared areas throughout the building. These can include fitness areas, parking garages, utility rooms, cafeterias, restrooms, elevators, stairwells, storage and maintenance areas, lobby space, and communal areas like break rooms and even rooftop terraces or balconies.
Measuring Square Footage and Calculating the Differences
Usable Square Footage
This is the easiest to decipher, but more rare than the other types. It includes the actual square footage that your business occupies.
Measuring usable square footage is fairly straightforward. For a rectangular space, simply multiply the length of the room by the width. This can easily be done with a tape measure.
For more irregularly-shaped spaces (such as an L-shaped or divided space), dividing rooms by rectangular or triangular shapes and adding the multiple sums together will provide a more detailed account of total usable square footage in a commercial office space.
Rentable Square Footage
Standard tenants that don’t occupy multiple floors or an entire floor can calculate rentable square footage by adding the shared floor and building common factor to the rentable square footage, like this:
Usable Square Footage x (1 + add on expense percentages) = Rentable Square Footage
For example, if you’re trying to determine how much you’ll pay each month for a 4,000 square foot property at a market value of $1.75 per square foot, you’ll want to use the following formula:
Market Price per sq. ft. x RSF = Total Monthly Rent
In this example, you’d be paying $1.75 for each of the 4,000 square feet:
$1.75 x 4,000 = $7,000 per month
Common Area Factor (or Load Factor)
Common Area Factor, load factor, add-on factor, or core factors are examples of the common area space you’ll pay for while you occupy space in a commercial building. Landlords add all of the rentable space throughout the building (even elevator shafts, stairways, maintenance areas, and utility rooms), then subtract the total space contained within tenant leases to arrive at a shared common area between all tenants.
Calculating the load factor is relatively simple. Start by finding all the usable (USF) and rentable square footage (RSF) throughout the building, then divide RSF by USF to determine the load factor.
What’s a Loss Factor?
Loss factor in commercial real estate is the percentage difference between rentable areas within a building that tenants pay for and the usable area throughout the building.
When landlords advertise available real estate listings, they’ll often factor in the common area factor in their square footage disclaimer. For example, if your desired space is listed at 2,500 square feet with a 13% load/loss factor, your actual usable space will be 2,212 square feet.
How Do You Pay for Common Areas?
Your office space is more than the square footage you occupy. After all, having a lobby, elevators, cafeteria, stairwells, and restrooms do cost money.
Most commercial real estate lease agreements have some sort of common area factor built into the legalese, but some landlords institute a common area expense stipend on top of monthly rent and utilities.
What are BOMA Standards?
The Building Owners and Managers Association (BOMA) provides the real estate industry an easily understood floor measurement standard for office buildings. Updated in 2017, the BOMA 2017 for Office Buildings: Standard Methods of Measurement offers landlords and brokers a mutual understanding on how – and why – certain shared or common areas are calculated into load factors.
Changes from the previous guide include calculations for:
- Outdoor/patio/rooftop spaces
- Fitness centers
- Conference centers
- Updated allocations for amenity and service areas based on tenant usage
- Capped load factors may be applied on a tenant-by-tenant basis
When searching for new office space and comparing potential properties, considering the differences in USF, RSF, and common area factors in each lease can make a major impact on your bottom line. Depending on the number of amenities and your needed uses in a potential property, breaking down the different types of Common Area Factors between commercial real estate opportunities and how they add or detract from the value of the space itself. That’s why it’s so important to work with your tenant representation broker to ensure your team gets a detailed breakdown of each property’s cost/risk analysis.