One of the most clouded concepts in commercial real estate for many tenants is the idea that they are, in fact, paying for more space than they actually “use.” Landlords use a formula to set a rental rate that factors in both the actual space being used by a tenant and that tenant’s share of all common areas in the building.
Useable Square Footage vs Common Areas
Usable Square Footage
The useable square footage of an office space is essentially the space your company occupies. In many cases, this space is determined as if any recesses or structural elements such as columns are not there. With large-scale tenants who occupy entire floors or several floors, rental rates include all the restrooms and maintenance closets and rooms on the floor in their usable space.
Both small and large-scale tenants play some portion of the shared areas within a building. These can include large central areas such as a lobby or restrooms and elevator areas. Common areas can be divided into two categories:
Floor Common Area: common areas on a specific floor. A tenant’s share typically averages out at eight percent of the floor.
Building Common Area: common areas in the overall building space. An average tenant share of this can range from six to eight percent.
It is important for tenants to understand that landlords often include the floor common area and the building common area as the “common area” factor in their equations. This means that a tenant’s share of “common areas” can range as high as 20 percent.
Rentable Square Footage
The rentable square footage times the lease rate per square foot is what you will end up paying on your lease. What is the rentable square footage? Well, if you are a standard tenant and not a full floor/multi-floor tenant, your rentable square footage is your usable square footage times the floor common factor times the building common factor. In other words:
rsf = usf x (1 + Add-on %)
As an example, let’s consider a tenant looking for 10,000 square feet of office space. The add-on factor (both the floor and common) is 15% for that building. The rentable square footage would be:
10,000 x (1 + .15) = 11,500 rsf
Some landlords in various markets may use a different factor than an Add-On, such as a common area factor. Always confirm whatever factors and calculations your landlord is using to determine your RSF. Do this before signing a lease– any discussions after that will be moot. While leases do not detail the calculation method used necessarily, many landlords may well agree to language in the lease that states that the measurement of a leased office can be verified by a professional, such as an architect, in line with some acceptable industry standard like the BOMA standard. You will also want your tenant broker to confirm that the common area factor your landlord uses is actually based on relevant and realistic dimensions.
So when you are running your search for a new office space and comparing buildings, make sure that you consider the common area factors and how they are adding or detracting from the overall value of a space. To parse the finer points, consider working with a tenant representative to really get a detailed analysis of an office space’s cost efficiency and the benefits it will bring your business.