DO I NEED TO KNOW THE DIFFERENCE?
Being able to make sense of usable vs rentable square feet is vital for knowing how much space you are really going to get when you rent an office for your company. 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. Having this knowledge will also help you ensure that you are getting the best possible deal on an office space and that you have an accurate idea of how much space you will be getting.
USEABLE SQUARE FEET
Let’s talk about useable square feet. The usable square feet of a space is defined as the total area unique to the tenant. Think of it as the space specifically set aside for your company’s use. Once you walk into your suite, the area inside is considered usable square feet. The calculation of this number will be slightly different for tenants leasing a full floor vs tenants leasing a partial floor. For a partial floor lease, this includes all office space plus any storage areas or private restrooms unique to your suite. It also includes space taken up by things like columns or recessed entries.
RENTABLE SQUARE FEET
Rentable square feet. Let’s talk about it. So what is 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 includes 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.
CALCULATE RENTABLE SQUARE FEET
So how do you calculate the rentable square feet? To calculate rentable square feet, landlords use what is called a load factor (also called a common area factor, or an add-on factor). They use the load factor to figure rentable square feet for individual tenants. 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. This would leave 15,000 square feet of common areas and the load factor would equal to the rentable square feet divided by the usable square feet, or 1.15.
The formula for calculating load factor goes just like this:
Building Rentable Square Feet ÷ Building Usable Square Feet = Load Factor
So that would be, in this example,: 100,000 ÷ 85,000 = 1.15
This load factor is then multiplied by the 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:
The formula is as follows:
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.
Now you have a little extra insight into commercial real estate and how those square footage figures you see in office space listings are actually calculated. Ideally, when you are looking for a new office, you will be working with a commercial real estate broker who will be able to walk you through issues like this, but it is always smart to be informed and aware. Also note that if you see the abbreviation USF, that stands for usable square feet, and the abbreviation RSF stands for rentable square feet.