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What is the Difference between Usable vs. Rentable Square Feet?

Knowing the difference between usable square feet and rentable square feet can mean all the difference in evaluating the best deal on a commercial lease. Office space is generally listed with a rentable square footage rate, which includes more square feet than the actual space the tenant will occupy. So how can a company know what it is paying for, and get great space for the best price?

Usable Square Feet

Usable square feet includes the specific area the tenant will occupy in order to do business. For a partial-floor lease, this includes all office space plus any storage or private restrooms. There are no exclusions for columns, recessed entries, or the like, either--column space is fair game in the calculation of total usable square feet.

When a tenant occupies a full-floor, the usable square feet amount extends to everything inside the boundaries of the building floor, minus stairwells and elevator shafts. This can include non-usable areas like janitorial closets, or mechanical and electrical rooms. It also encompasses private bathrooms and floor common areas, like kitchenettes, hallways, and reception areas that are specific to that floor's use.

Rentable Square Feet

A commercial office building is not made up of private offices and cubicles alone. Corridors, meeting spaces, lobbies, stairways, restrooms and so on are used by all building tenants, and landlords charge for the use of this space as well. Rentable office space means the usable square feet of the office space plus a pro-rata share of building common areas. Pro-rata means that tenants pay for these common areas in proportion to the amount of space they lease in the building.

Load Factor

To calculate rentable square feet, landlords use what is called a load factor (also called a common area factor, or an add-on factor). This number is based on the percentage of common areas found in the building. If a building has a total square footage of 100,000, with 85,000 usable square feet (which is to say 15,000 square feet of common areas), the load factor would equal to the rentable square feet divided by the usable square feet, or 1.15.

Building Rentable Square Feet ÷ Building Usable Square Feet = Load Factor

100,000 ÷ 85,000 = 1.15

This load factor is then multiplied by individual tenants' usable square feet to come up with the total rentable square feet. If a company desired to lease 5,000 usable square feet, for example, this number would be multiplied by the load factor of 1.15 to reach 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 square foot amount would then be multiplied by a rental rate to come up with the company's total annual or monthly rent.

Knowing this formula helps companies to evaluate their best deal for office space. Suppose a company compared two 5,000 usable square foot office spaces with the same rental rate from two buildings with load factors of 1.15 and 1.20.

5,000 usable square feet x 1.15 = 5,750 rentable square feet
5,000 usable square feet x 1.20 = 6,000 rentable square feet

In the first building, the rent would be based on 5,750 square feet, whereas the second building would charge rent based on 6,000 square feet. The building with the lower load factor would save the company significant money.

On the other hand, the company may decide that the extra money is worth the larger, fancier lobby, or more spacious kitchenette. It could be the company's best decision to value the amenities more than the extra cash. The important thing is for companies to do a little math and figure out exactly what they are paying for in order to make intelligent decisions about value.

Load factors, often represented as a percentage, commonly range between 10% and 20%. Often a partial-floor tenant will pay a floor common area share as well, in order to pay for use of the floor's corridors and bathrooms, etc. The landlord will calculate the tenants usable square feet times the proportion of space the tenant occupies on the floor to come up with a floor rentable square feet figure; that number is then also multiplied by the building's load factor.

Building Owners and Managers Association International (BOMA)

Most leases and landlords utilize the Building Owners and Managers Association International (BOMA) standards for measuring buildings. The lease should specify that measurements were taken according to these standards. If leasing a lot of space, tenants would be wise to hire an independent professional to verify usable square feet and rentable square feet figures. Errors are common, and can add up to a lot of money over the course of a lease.

Read the Lease, Do the Math

To get the best value office space, prospective tenants will make like college students, and do their homework. Company X evaluates Building A with 10,000 rentable square feet and a load factor of 1.10 and Building B with 10,000 square feet and a load factor of 1.15, paying the same amount of rent for each building. With a little investigation, Company X discovers that Building A provides them with 9,091 usable square feet--nearly 400 square feet more than Building B's 8,696 usable square feet. Those 400 square feet could house a few more personnel, or make one more nice executive office for upper management. In short: read the lease, do the math, and find the best value for your company's office space.

Sources

Coy Davidson

Property Metrics

Law Office of James Kaklamanos

Coy Davidson

Coy Davidson

Senior Vice President at Colliers International, based in Houston, Texas.