Understanding the Common Area Factor: Rentable vs Useable Square Feet

by CoyDavidson on February 26, 2010

Why do you pay rent for more space than you occupy?

Few commercial real estate concepts are as misunderstood by tenants and even real estate professionals, as the measurement of office space square footage for rent purposes. The formula to determine the amount of rent in most office leases incorporates both the usable square footage, plus the tenant’s proportionate share of common areas in the building.

Useable Square Feet

In general, usable square footage is the amount of space you actually inhabit. For smaller tenants, useable square footage is simply the area of the demised space inside your office suite with no exclusions for recess entry/exit doors or structural columns. What that means in essence, is that the space is measured as if columns are not there. But restrooms and janitor closets, elevator lobbies and public corridors are there, and you pay a portion of the space they occupy with the other tenants who use them.

For full floor or multi-floor tenants, useable square footage is everything inside the glass line, including restrooms, janitor closets or mechanical and electrical rooms. Like small tenants, full-floor or multi-floor tenants also must pay a share of the building common areas not on their floor, such as the main building lobby.

The Common Area Factor

The common area factor is a number which refers to shared spaces on a single floor, and within a building in its entirety. These spaces as previously mentioned can be a pro-rata share of tenant common areas such as restrooms and elevator lobbies, or main building lobbies and amenities which all tenants of the building use.

The Floor Common Area Factor refers to tenant common areas on that floor only, and although the number varies from building to building, it is generally near eight percent of the floor for a factor of 1.08.

The Building Common Area Factor refers to common areas for all the tenants in the building, and can range from six to eight percent. Common area factors determine the actual square footage for which a tenant will pay rent.

Typically when you are quoted a common area factor by the landlord or the building’s leasing agent it includes the sum of the floor common area factor and the buildings common are factor. As a result for most office buildings the total common area factor ranges from 12 to 20% subject to the design of the building.

Rentable Square Feet

Simply stated, rentable square footage is the area of the enclosed interior space of the building other than holes in the floor, such as stairwells, and elevator and mechanical duct space. If it’s floor that you can stand on, you pay for it, because it is rentable space. That includes restrooms, janitor closets, electrical and telephone rooms, etc. What you pay for then-your rent–is the rentable square footage times the lease rate per square foot.

To calculate rentable square footage for a smaller (less than full-floor) tenant, first multiply the usable square footage by the floor common factor, then multiply that result by the building common factor.

Similarly, a full- or multi-floor tenant would multiply its full-floor usable by the building common factor because of the extra shared amenities and lobby space.

The Calculation

The formulas to determine the usf and the rsf are: rsf = usf x (1 + Add-on %)

Add-On % = (rentable sf / usable sf  –  1)

For example: Assume you need 10,000 usf and there is a 15% add-on factor.

rsf = 10,000 x (1 + .15) = 11,500 rsf

For example: Assume you a leasing 16,000 rsf and have 14,000 usf.

Add-On % = (16,000 / 14,000) – 1 = 14.29%

In some real estate markets a load or common area factor (CAF) is used instead of using an Add-On or Loss factor. Sometimes various landlords have differing definitions of these terms. It is a good practice to always clarify the calculation with the landlord or his agent to ensure there are no misunderstandings.

It is very important for a tenant address this issue before a lease is signed, as there is usually little or no recourse after lease execution. Most leases do not detail a method of direct calculations of either usable or rentable square footage, and if a rentable figure is provided, it is almost always modified with the word “approximate.” However, most reasonable landlords will accept a revision to lease language that the measurement of the premises will be verified by either the tenant’s or landlord’s architect subject to an acceptable measurement standard such as the BOMA Standard or the commonly accepted standard for the market. Your tenant representative should verify that the common area factor represented by the landlord approaches reality.

Comparing Various Buildings

When you are out evaluating space options it is important to note that most buildings have different common area factors and floor plate dimensions or shape can impact the space plan and the required amount of useable square footage. When comparing buildings particularly from a financial aspect you should be using a cost per useable square foot (USF) metric, to be sure you are evaluating your options on” apples to apples” basis.

Ultimately you are looking for the right space that not only fits your budget but also other real estate and workplace criteria. However, two buildings with the exact same face rental rate can have significantly different economic as a result of common area factors and space design efficiencies.

Working with a tenant representation specialist who understand all the intricacies of leasing office space and possesses the technical skills to evaluate various options will insure you are making an informed decision.

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  • http://www.CorporateAdvisor.wordpress.com Andrew Zezas, SIOR

    Coy:

    As always, your article is detailed and accurate. One more point worth mentioning is that, in recent years, common area factors have been inflated to become little more than additional profit opportunities for landlords. When that occurs, it has the impact on tenants of inflating actual occupancy costs.

    Keep up the great work!

    Andy Zezas, SIOR
    Real Estate Strategies Corporation – New Jersey

  • http://www.claudekershner.com claude

    Thank you for this!

    Very helpful!

  • CoyDavidson

    Claude, glad you found the article helpful. By a landslide this has been the most viewed post on my blog.

  • http://www.visuallease.com Chris Werely

    Coy,

    Great article. Your readers may find these additional articles helpful in regards to space measurement:

    Measurement of Square Footage – http://www.kbalease.com/2009/11/measurement-of-square-footage/

    Methods of Building Measurement – http://www.kbalease.com/2009/12/methods-of-building-measurement/

    Keep up the good work.

    Chris Werely
    KBA Lease Services & Visual Lease

  • http://www.lapwortharchitects.com Birmingham Architects

    great article and very helpful. It is important for all property professionals to understand the common area factor. This includes architects who are of course responsible for designing the buildings.

  • http://www.dmcihomes.com/ condo in philippines

    Agree it is important to know the area of space usable for leasing purposes. Not only for property professionals, tenants must be aware of the common area of space they are leasing on a certain property. 

  • http://www.jjinfra.com/ JJInfra

    Great post !

  • Mary

    what is the maximum allowed load factor can landlord charge for a highrise office building in california

  • http://www.coydavidson.com/ Coy Davidson

    While I don’t practice in California, if it is like Texas the building owner can charge whatever the market allows. You won’t see a building owner apply a load factor more than the actual factor, as that would be considered deceptive, but in many cases the building owner will apply a load factor less than the actual common area factor for marketing purposes.

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  • http://estateagentsburtonontrent.co.uk/ Thomas

    You mention common area factor, would i be right in thinking that it can vary considerably by building. A single story building will have a
    lower add-on or common area factor than a multi story building. A 15%
    add-on factor for a typical multi story building is not unreasonable,
    but low 20% is not unheard of.

  • http://www.coydavidson.com/ Coy Davidson

    Thomas, yes you are correct it does vary from building to building and its but its not always the number of floors but the design or size of the common areas. Also if you lease an entire floor it is typical that the common area factor is less for a floor with multiple tenants.

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  • Connie

    I have a question, I rent a town home there are 50 units and the land lord told us that our front yards are common area?? have you heard of this before? If so what does that mean??

  • http://www.coydavidson.com/ CoyDavidson

    Common areas are available for use by all tenants in the property. This means all 50 tenants or users have rights to use any area of the real property that is deemed common areas, such as the lobby of a building or in this case the front yards. This is not unusual.

  • Oliver Finney

    Very insightful. I thought getting property reports is just enough to make well-informed decisions on buying or selling or renting a property. I didn’t know you can actually calculate the real value of the space. Thanks very much!

  • Bill

    .
    Thanks for a very informative and helpful article. For a full-floor user of a first floor with a corridor from the building entrance to the elevators, would the corridor be included in rentable square feet It is “inside the glass,” but clearly used by all tenants. Thank you.

  • KIM

    IF I RENT A COMMERCIAL SPACE, IS THE SIDEWALK IN FRONT OF THE STORE CONSIDERED A RENTABLE SPACE. BASICALLY, DO I HAVE TO PAY RENT FOR THE SIDE WALK IN FRONT OF MY STORE. AND THIS IS IN A STRIP MALL CENTER.

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  • Bethany

    I have a commercial lease. The rentable square feet featured in the lease is 180 more than the amount of floor space I actually have access to. That space seems to be inside the walls, the landlord has referenced BOMA in his justification of including that space in my rent. I am wondering if this is common practice. I have not yet begun paying rent.

  • t@yahoo.com

    testing

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  • http://www.bretthaynes.com/ Brett Haynes

    Well presented and to the point. With the exception of a handful of buildings in our market we don’t end up dealing with this in leases. But, it is certainly important information to know.

  • Ravi

    Can a Landloard charge a tenant for the Elevators as usable sq.ft. For example, the elevators only stops and can be accessed on 5th to 10th floor. A single tenant happens to fully occupy 5th to 10th floor and blocks the public access to these elevators on the ground floor so no one can get to the lobby without passing the security point.

  • http://www.coydavidson.com/ Coy Davidson

    Ravi ,typically vertical penetrations ie elevator shafts are not included in the calculation. However, it depends on how the lease reads. If the lease does not spell out a standard of how space is measured, then theoretically they could. You might refer to this document; https://www.dropbox.com/s/tflfof5nwgofk38/ANSI_Standards_202723_7.pdf

  • Bill McInerney

    Good post. I come from the school and my first rule is, “always measure” leased space. Never take anything for granted. Then always check on the actual building size via city or town hall records.
    Bill McInerney

  • KD

    We rent a small office on a floor in a large building. The floor we are on otherwise unoccupied (all other tenants have moved out). We measured our usuable space (the actual space we occupy) in order to re-arrange the office space and we have come to find out the square footable is approximately 200sf less than what we have been paying for listed under “Occupant Area”. It is approximately 350sf less than the “Rentable Area” which includes a conference room that is not maintained by management therefore the room is filthy, full of magazines stored there by a tenant who no longer occupies space in the building, used and moldy coffee machines, and garbage. We are going ROUNDS with our landlord as our lease is up and we’d like to avoid moving but feel we are paying for space that is not usuable (I do understand common areas such as usage of the elevator, and restrooms, but those do not equal our leased SF in either category). What else can I do?

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